You've probably got a hardware problem/incompatibility issue. I've just replaced motherboards in 9 school PCs - also PIIIs. They had had XP installed (98 originally), but then all of them over a few months just went into restart loop. Wiping and clean installing made no difference - just wouldn't take XP any more (also tried swapping out various bits of hardware - but it was the mobo). So yours may have a similar problem (either mobo not compatible with XP or has become so) - or it may be another item of hardware (eg, RAM) - XP is sensitive to bad - even slightly bad - hardware. If you can substitute other items that you know work in XP machine (RAM, graphics) and disconnect everything unnecessary for install (sound, network, modem cards, printers, extra CD/DVDs etc) and try again, may get an indication as to cause of problem.
PS. Quick check - if there's an anti-virus setting in the bios, make sure its disabled. Also, I've just read your post properly! I presume on restart, machine doesn't prompt to press any key to boot from CD - just boots from CD. so, also in the bios - is the hard drive actually on the boot from list (it should be after the CD, and perhaps the floppy, but it should be present).