QUOTE
1. The small Windows 98 logo appears
You mean windows xp? I'll continue as if you do. Otherwise, I'm just confused..
So you went into your bios by hitting F2 and the computer is set to boot first from the cd rom drive. Yet with the windows XP cd in the cd drive, it doesn't give you a message saying, "Press any key to boot from cd"? (or something similar to that). Sorry to recap I just want to make sure we're on the same page, it can be easy to miss things writing it out like this.
With any data CD in the drive, try hitting D: or E: What happens then? If the drive changes letters, try hitting /dir Does the little light on the outside of the cd rom come on?
What it sounds like to me is:
A: The XP cd has gone bad
B: The cd drive has gone bad
On top of the operating system issues... ouch!
I would try to get my hands on another windows CD, any version will do, just to try to boot to it. With any luck it's just the CD.
edit - If you feel the need to hit it, aim for the keyboard. The lcd screens can get expensive to replace!! <snicker>