If OS is not found, the problem may have  been occurred on ARC path in the boot.ini file.
Assuming that your system has only one hard drive and the OS is going to be installed in the first partition , check in the boot.ini file if ARC path is listed correctly as follows:

[boot loader]
timeout=30
default=multi(0)disk(0)rdisk(1)partition(1)\Windows
[operating system]
multi(0)disk(0)rdisk(1)partition(1)\WINDOWS=Microsoft Windows XP

Where, multi(0) is IDE disk controller, disk(0) is first disk, partition(1)
is first partition, and Windows is system root folder.

Here is the link for how to check or edit boot.ini file:
http://support.microsoft.com/default.aspx?scid=kb;en-us;311578

Let me know should you have any question.
Good Luck!