Ok, lets just go back a step, Remove the DVD and tin foil from Hard drive, and reboot, does the system reboot ok.
Next add the dvd with hard drive (no tin foil) and see what happens ?
Also can you see what your "BIOS" is set to ? is it a PCMCIA dvd or an internal ie you have removed a cd rom drive ?
You might have to "RESET" your bios chip and reboot with the dvd in place.
Not sure how you would do this on a laptop ? I would assume its the same as a desktop in that you short 2 pins on the mother board.
Another thought that has just sprung to mind is that you may have to load a system file for the dvd in the config.sys file and autoexec.bat file as windows loads default cd rom drivers, which will be trying to load for your old cd rom.
I was going to say can you set it in dos ? but XP dosnt have it, could you try a 98 Start uo disk and load dos off of that and see if you can see the dvd that way ?
I suspect it is a similar problem that I have with my pcmcia cd rom drive in that windows needs to associate a driver for the device so it can place it into its registry.
Sorry if a bit muddled, but XP is still new to me, only use it as a partion on my desktop.