Set your rom drive to first boot in the boot order in the bios then reboot, press any key to boot from cd when prompted, delete Vista partition, recreate partition, then carry on with the install.
Can you put the hdd in another pc as a slave and delete the partition there? I know that works because I did it when I erased Vista from my second hdd when I kicked it to the curb.
Seems weird that you can't delete the partition, maybe something to do with Vistas BCD but I find that hard to believe as you don't even get to anything Vista during XP setup. I'm only speculating as I had my Vista install on a seperate hdd and just formatted it via XP Disk Management.