Might still be worth trying to borrow an original Windows XP installation disk to boot from that as ian suggested (or take it into a repair shop to check). A colleague at work had a similar error a few weeks back. The XP recovery didn't run when I tried that but I then tried chkdsk and it managed to find & fix a duff sector (XP booted up OK after that). Seems a shame to bin it if its something similar.
Sounds like the OS either needs reloading from scratch and/or the HDD is stuffed, either way you've probably lost the lot to be honest.
Your recovery CD's are a a waste of time in situations like this as they will only allow you to start from scratch as you haven't got a direct copy of XP.
Also being a lappy, unless you're going to fork out some cash to plug a 2.5 inch drive into a standard IDE connection to master/slave two drives using a standard PC it's unlikely you'll get the data back.... one of the joys/banes of owning a laptop unfortunately.
I have not managed to get it to a shop yet, will on weekend. I guess they will charge to have a look at it even if its just to say its dead
Quite right in that it will be shame to bin it, dont need a new one either and will lose quite a bit of data to, thats if it is that simple to fix I hope