|Optical drives should not be assigned the letter C. Do you have the WinXP installation CD in the DVD drive?|
Could be that both drives are jumpered using CS (Cable Select) If this is the case then I suggest you change the jumpers to make the hard drive the Master and the DVD drive the Slave. Reboot and see what happens.
If that doesn't straighten things out, check Disk Management to see if there are multiple partitions on the hard drive and if the drive is seen as a basic disk.
If there is only one partition then try changing the drive letter assignment for the DVD drive to a higher available letter.