Floppies are volatile, so it's likely that the drive or floppy disk failed while reading disk 3 or it was written incorrectly when the disks were originally being created. At any rate, it's more of a problem that you can't boot the CD. Hit whatever key it is that gets you into system setup/BIOS (F1, F2, F12, DEL, etc). Make sure that CD-ROM is ahead of HDD and floppy in the boot order.
Getting an error regarding "C:\windows\system32\config\system" means that the system hive has been damaged. There is a way to replace the SYSTEM hive using files found in the System Volume Information folder (provided that your mate has not turned off System Restore) and I can show you how to do it, but first you have to be able to boot the XP CD so that you can get into recovery console. Once you can get into recovery console, I'll show you what to do.