From what I've experienced, it's not a good idea to preload Windows on a hard drive and try to use it on a machine, unless the machine it was created on is the same as the machine you're using now, such as you would find with businesses.
I believe the "Press A Key to Reboot" is unique to your motherboard. I think it's the equivalent to mine when mine says "No Operating System found."
It's strange that your Windows XP CD doesn't boot when BIOS has it set to boot first. I noticed that you have 2 CD-ROM drives, so I hope you've tried using both CD-ROMs. Also make sure the hard drive is correctly set on MASTER and that it is detected in the BIOS.
I do not think that updating the BIOS would do anything to help with your situation. This is only because I've fixed a countless number of computers and have never needed to do so.
You're certainly right about it's going to be slow with XP. XP all by itself will take up that 64MB RAM, the rest will be working off of virtual memory. I would either up the RAM, downgrade your Windows (I would say Windows 98 with 64MB RAM), or get a faster computer. Speed and responsiveness is not a good trade for XP's "good look", because you'll spend most of the time being irritated and cursing at the computer.
I hope SOMETHING I said helps to remedy your problem. Please let us know if you get it working or get any further.