Well, lets see if I can explain this better.
1. Plugged in three drives: HDD Master on channel 1, DVD/CD Slave on channel 2, CD/R/RW Master on channel 2.
2. Play with the cable and jumper settings to find that only the DVD/CD will operate on Master of channel 2.
3. DVD/CD starts up normally. BIOS recognizes the drive.
4. Insert Windows CD. Noticed tiny cracks, but what the hey. (Big mistake)
5. Windows begins setup and gives a Stop Error.
6. Reboot and begin installation. Begins to load drivers.
7. CD explodes. The drive keeps spinning just fine, only a little more crunchy sounding.
8. Shutdown the computer.
9. Buy new CD drive and new copy of XP Home SP2.
10. Problem returns.
The problem existed before the drive went haywire. I opened up the drive (simply because I like taking stuff apart) and there was nothing wrong; no burns or missing parts. It probably could have kep working if I would have removed the chuncks of CD, but it was a $20, 2 year old drive anyway.
Seems like I've gathered some great minds here. Thanks very much for the help with this.