Cannot fully install windows xp onto my Dell Optiplex GX240

If you have a diagnostics disk I would try running them.  Dell once shipped a utilities and drivers CD titled "Dell Resource CD" with their computers.  If you have one of those you can boot it and run a complete check-up on the computer.

If you don't have the Resource CD, try removing all but one memory module and see if the problem continues.  If it does, replace the memory module with one of the modules you removed and see if the symptom has changed.  If that still doesn't work, go through the same process with a second memory slot to make sure the problem is not the memory slot itself.

The last time I had a similar problem one of the memory modules had a flaw that would show up intermittently.  You need to keep in mind that even if you run the diagnostic and find nothing that the memory could still be a problem.  My diagnostic ran just fine with no error found, so I wound up using the procedure I've described to find the problem module.

You didn't say what XP Service Pack you're installing, but XP and XP with SP1 had a problem causing the installation to stall with ~34 min remaining.  I believe this problem was fixed in XP SP2.

If your CD is XP or XP+SP1, read this and this from Microsoft.  

If you want to install any operating system, i suggest you to install latest release of it. For example if you want to install windows XP, install SP2 or SP3 because in this case all software problems are solved and many improvements in detecting hardware is done on new versions of operating system.

I have tried running dell diagnostics and everything was ok, I have also changed memory modules but still it's the same problem. Some  people have told me that there is a chip on the motherboard that only allows people to only use the genuine dell installation disk to make it work, I don't know if this is true. Anyhow thanks for the advice.  Howstun. 

Using Dell installation media makes things easier as the disk is keyed to the Dell BIOS and allows automatic activation, but it is not required.  The only difference would be that you need a Certificate of Authenticity (COA) with product code for your installation disk so that you can go through the activation process once you have Windows installed.

Rather than go through the automatic installation process, have you tried performing a custom install and deleting the existing system partition prior to installation?  Sometimes leaving vestiges of the old installation on the drive can cause problems.  You must boot from the installation disk using either the F12 one time boot menu or by going through System Setup (F2 while the Dell logo is displayed after you start the computer) and making the CD drive first in the boot order.  Windows installation disks usually pause at the beginning of setup and ask you to strike a key to continue booting, otherwise the computer will try the other devices in the boot order.  Once you have the setup screen showing, delete the existing C partition and then choose to install Windows in the empty space (or create a new partition yourself; up to you).  You should have no external devices attached to the computer other than the keyboard, mouse, and monitor during this process.

One possible cause of your troubles is that Windows Setup might be having trouble identifying a driver for a particular device.  Making certain you have nothing additional connected to the computer helps in this case by removing a problem device.  In some cases it is necessary to also remove any expansion cards (other than video) for this same reason.