And what kind of modem at you using that requires you to type AT commands directly too, for it to wake up? That is like the old days of Windows 3.11 or even older. Commodore 64 Days.

Never...

To start with, I would be interested in seeing the exact error message/dialog box that comes up when you try to access the file. And by access, what do you mean? Opening it? Copying it? ...

Yeah, well one other thought is to see what is running in the windows taskbar. Anything there that needs to be loaded at Windows start up can slow things down too. i.e. Zone Alarm, Norton...

OK, when you boot up with the Windows XP CD, you should got through the normal process of F8 to accept some CULA or something agreement, and then be prescent with something like ENTER to install...