Windows XP reinstall - can't find HD

My system:

Dell 8400 - 3.2 GHz
BIOS - A01 (7/17/04)
1 MB mem DDR2 sdram 2x512
SATA HD
CD and DVD drives
Originally Windows XP Home Edition SP1A - upgraded with SP2

OK, I've made the decision to reinstall Windows XP.

My Boot sequence is listed as:

1 - onboard or USB floppy drive
2 - onboard or SATA Hard drive
3 - onboard or USB CD-ROM drive

Following the Dell owner's manual, I inserted the Operating System CD (SP1A version) in the CD-ROM drive;

Restarted the computer - pressed F12 - selected CD-ROM for Boot Device;

Pressed any key to boot from CD;

Windows XP Home Edition Setup screen appears with following options:

- to set up Windows XP, press Enter
- to repair Windows XP using recovery, press R
- to quit Setup w/o install, press F3

When I select the first option I get the following message:

"Setup did not find any HD install on your computer"

The SATA HD is OEM for my computer. I have no problems accessing the drive otherwise.

Any hints on how to proceed?