I tried to reinstall XP on a friend's machine two times now, and both times I got this error message during setup: "Cannot Find \Windows\System32\HAL.dll"
I've checked the online dbs, and it looks like HAL stands for "Hardware Abstraction Layer", whatever that is, but this isn't really helping now, is it?
Actually, I've had the exact same problem some time ago. With me, it was due to dynamic drive overlay issues, so as it turns out all I had to do was remove the DDO from the hard drive before installing the OS. I used this tool - http://www.seagate.com/support/disc/drivers/discwiz.html, I'm sure there's a similar one for your HDD as well.