I would replace the CD/DVD drive or get a cleaning kit so it can read the disk faster and more reliably.
 

When you get the blue screen error, what does it say? Specifically, you're looking for the hexidecimal message. It should be one set followed by a few sets in parentheses. Hexidecimal will look something like this: 0xC000001A. This will allow you to figure out specifically what is wrong with your system.

clean your drive and disk carefully. If doesn't work you may need a new drive or disk. If it is a cd drive - that could be your problem esp if it is an older drive. They may not read the faster disks properly. A firmware update maybe available - but dvd readers [even dvd burners] are cheap and much faster at reading cd's
Plus this is what I do in that situation - works best on a partitioned drive but will work on a clean single partition. make a folder called xpsetup - copy just the xp setup files and folders from cd to that folder -run setup from folder.
This trick also works for other programs most of the time - even on a machine running vista.