boot disks not booting

I have a two-year-old XPS T500mhz Pentium III minitower.

My hard drive appears to have failed, which I thought I could deal with, but I am unable to boot the computer by other means.

When I turn on the computer, the pre-windows Setup comes on...The computer appears to recognize my cd-rom, my hard drive, my RAM. I'm also able to go into Setup and make changes (though I haven't).

But even though I have my Microsoft Boot Disk (W98se) in the quarter-inch drive, it won't boot (I've also tried a copy of a friend's disc of the same.)

Based on the possibility that the floppy drive has gone bad, too, I copied the boot disc's contents onto a CD-R using a friend's computer (I have a cd-rw drive) in mine. (I also made a copy of the friend's boot disc onto a cd-rom).

That doesn't work, either. I end up with the same result: a black screen with a flashing underline cursor in the top left.

Get no error messages at all now, but the first time after the failure I did get an "Operating system not found" message.

Only other message was that after the floppy boot disk didn't work a few times, I deliberately stuck in a non-boot disk to see what would happen. I got a "Non-system disk or error...Replace & strike any key" message. But when I put my boot disc back in, nothing but that flashing cursor.

Any ideas how to proceed? Other things to check? Posted instructions on how to deal w/this?

All suggestions gratefully appreciated. Thanks.