Reformat / Hard drive issues

Okay, so i come to you with problems so bear with me.

I have a HP pavillion laptop windows xp.
I think i got a virus back and tried to remove them with some anti spyware stuff but in the end i tried to reformat and this is what happens.
I have my set up disk in, i start up my computer.
Blank black screen with blinking _ in the top left corner.
After a bit of loading in this screen it says Press any key to boot from CD
a blue screen with Windows Setup is in the top right.
At the bottom it says "Setup is loading files" etc etc. Text flashes in the ( ) space beside.
a screen tha tsays "A problem has been detected and windows has been shut down to prevent damage to your computer. If this so and so" I think this is the blue screen "of death"?
SOMETIMES. it will go to a screen that gives me three options. I havent been able to get to that screen in a while.
If anyone has any ideas. Please let me know. Is my laptop roast? Or can i get it fixed? Thank you. Let me know if i need to include anything too.

 

What happens if you take the CD out and tap your Function 8 key before Windows loads? Do you see an Advanced Boot menu with a list of options beginning with Safe Mode?

 

Ah ! yes i do

 

Highlight Safe Mode with Networking and run the malware scans again to try to fix the system. Beyond that, I dare not comment further.

 

Hrmmm, I tried doing that, but it brought me back to the blue screen that says "Setting up windows" Then it gives me the blue screen of 'death'.

 

anyone?

 

Is you XP CD dirty? Does it have lots of finger prints on it?
Clean it then try it again.

 

No, it's clean

 

Does the BSOD (blue screen of death) have a stop code?

eg. STOP: 0x0000007b (XxXXXXXX, XxXXXXXX, etc..)?