Firstly: is it getting the error when you boot off of the XP CD?
Since it's doing it while loading drivers, is the HDD SATA? Can you enable IDE mode in the BIOS for SATA drives? Your XP CD may be bad as well.
If you're able to get to the setup screen for XP, press R to enter the recovery console, and type in the following command when at the C prompt:
chkdsk /f /r
This will check your HDD for bad sectors and attempt to fix them, if this is the problem.
Also, any reason why you're wanting to switch from Win7 to XP? XP isn't supported anymore, and you might not be able to find drivers for your laptop for XP...