If the setup program is not seeing the drive at all, one potential cause is that the drive is a SATA drive — the original version of XP isn’t smart enough to locate SATA drives if the motherboard doesn’t automatically see them, because XP was introduced before SATA caught on. Your motherboard manufacturer should have a driver for the SATA controller on your hardware, which you’ll have to put onto a floppy disk for use during the install process: when the setup program asks you if you have any special drivers to install, hit F6 and then insert the floppy with the proper driver files when it asks. After that, your drive should show up as an option.

If the setup program sees the drive but just doesn’t see it as free, it’s possible that XP sees a newer version of Windows and won’t touch the C drive. Try formatting the drive before installing XP. Use a floppy wth Darik’s Boot ‘n’ Nuke - http://dban.sourceforge.net.

The only thing I can think of here that can cause this problem is that either the drive has become damaged and is no longer showing up in the system, or it has been unplugged/misconfigured inside the computer. If you’ve recently tinkered around inside the case of the computer in an effort to install a new hard drive, or even just to look and see, you may want to go back in and make sure the power cable and IDE/SATA cable are still plugged in. If you did any jumper reconfiguration that can also be a cause of the problem if there are two hard drives..both jumpered to the same setting can mean the system will see NEITHER drive.