Dell :: Inspiron 2650; Can't Install New Hard Drive

The notebook is about 5 yrs old and has the original 20Gb HD which I wanted to upgrade to a 120. The operating system is XP and the computer runs fine; it just needs more HD space. I purchased a new WD HD which will not install. When I put the new drive in (with XP install disk in CD drive) the system will hang for about five minutes before finally getting to the setup routine. The setup sees the new HD and prompts to format it and I did. Once the format is done and it reboots, I get a BIOS message saying "fixed disk failure." At this point, it will not proceed to install windows. I've also tried booting from a floppy. Basically, the machine will not boot from a floppy with the new HD installed. If I remove the HD entirely, the machine will boot from a floppy and it will also boot correctly from the XP setup disk. It will also boot from a floppy with the old hard drive installed and it also boots from the CD with the old hard drive installed. I have sent the drive back to the seller and they tested it and said they could find nothing wrong. I tried installing the new HD about a half dozen times and it behaved the same way each time. I just went through this proceedure with another computer (replace old HD with brand new one), so I know how it is supposed to work. There is nothing I can configure in BIOS as far as the HD is concerned, and I have not been able to find anything that would indicate that I need to update my BIOS. My basic question is; why will the computer work with the old HD, but not a new one if there is nothing wrong with the new HD?