If you're trying to install XP or Windows Vista/7 from a USB thumbdrive or Hard drive, then this won't work. You need to take the laptop to a local repair shop or buy an external CD drive. Should cost about the same.
Have you tried FlashBoot to make your USB bootable? Using FlashBoot you can convert Windows 7, Vista, XP installation CD/DVD disk to bootable USB disk and install Windows http://www.prime-expert.com/flashboot/
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