Sorry what do you mean by setup? Are you just running the disc while
windows is running on your computer?
If you are formatting from simply running the disc this is not the
best option i would
recommend you do a clean install instead!
you have to change your bios settings to boot from disc first
http://www.hiren.info/pages/bios-boot-cdrom

 and format from there

http://www.theeldergeek.com/xp_home_install_-_graphic.htm

Regards
   Nitros

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