Dell Vostro 1500 doesn't allow to install system on new harddrive

My boyfriend got a dell vostro 1500.. his harddrive crashed, so I sent him a new one for his birthday. But now while trying to reinstall the OS (XP) it says error 7 and would not continue the installing..

The Bios finds the harddrive.. what might be the problem?

Would a alternative OS help instead of using the recovery cd?? Thinking about sending him Win7 or probably give it a try with Linux...