Virtual PC 7.0.2 problem: can't install Windows XP Pro SP2 bootable

I am new to Virtual PC, and have just installed it on my PB 12" 1.0GHz machine running 10.4.7 w/ all security updates and 768 MB RAM, 30 GB free hard drive space. I have repaired and verified disk and disk permissions on my hard drive.
I loaded VPC 7.0.1 from the install disk.
I downloaded and installed the VPC 7.0.2 upgrade.
I am unable to install my stand-alone full version of Win XP Pro Service Pack 2. I have followed the instructions in the VPC literature and the Help for setting up a new Virtual Machine and attempting to install the OS.
Within VPC, I can boot a Virtual Machine, and it reads:
"OS Not Found
Install an OS on this hard drive"
If I try to type anything, then it reads:
"Reboot and Select proper Boot device
or Insert Boot Media in selected Boot device"
The literature says that this is the time to put in the CD with the OS on it. I do that, it grinds for approx 30 sec, and then spits it out without loading the disk. The Virtual PC Virtual Machine never sees the disk.
The literature says to to go the Virtual PC Drives Menu/Capture CD, but this is greyed out.
The MS Windows XP Professional with Service Pack 2 install disk is a Bootable CD ROM disk, and clearly is unreadable by my Mac.
Any thoughts? Thanks!

Thanks for your possible fix, Harshboy. Unfortunately, my computer will not even read this disk. Before I open VPC, I insert the disk, it grinds for 30sec, and then spits the disk out.
I am beginning to think I may have a corrupted Win XP Pro install disk, or there is something I don't know about Windows install disks being read by Mac OSX.
I have tried the disk in a G4 Powerbook 15" 1.33Ghz 768 MB RAM machine, and it loads the disk, but the installer does NOT come up--it doesn't see that the disk is a system install disk, and it has a strange name of seemingly random letters. Most of the files are accessible, but SOME FILES ARE NOT, and when I try to copy those, it says they are unable to be read and thus unable to be copied. I have tried making a copy of all the readable files on the disk and copying them to an external firewire drive, and then trying to use that to install the system on my 12" G4 Powerbook, but it doesn't recognize any of the files as a system.
I have also burned a CD with the readable files from this disk, but VPC does not recognize the fact that there is a system on that disk, even when I try to open the "setup.exe" file manually, etc. When I do that, VPC opens/comes to the front, but still waits and asks for an OS to be installed.
The fact that the WinXP install disk does not come up as a system install disk on either PB makes me think that this disk is flawed. It's a stand-alone educational departmental license version (I am in education, it's legal), so I will attempt to take it back and have them verify whether or not it's a working disk.
Does anyone know any tricks about loading Windows install disks in Mac OSX? Is there anything I should know, and trick to make the drive read something it doesn't want to? (My 12" has a Superdrive).
Thanks-- Jeremy

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