You could try and clone the cd, with cd copying software as a test to see if the cd is having error and retrying to get there. that would determine first the state of the cd and the cd reader capability, to discover if anything is going badly there. You could copy the CD contents manually to a HD, change the install location in the registry and achieve the same thing, get the data from the HD instead of CD, finding out what the problem is. XP, it has been a while, but it is very flexable to do any of the above. As you already know it just wants to find the parts and pieces.
The install location pointed to in the registry is HKEY_LOCAL_MACHINE\Software\Microsoft\Windows\CurrentVersion\Setup
Data Type: REG_SZ a string.
SourcePath
Data The location where the I386 folder exists
like D:\I386
If you change the letter of the CD (like I always changed my CD to X) then it is a simple matter to change the place windows looks for the file items, in the registry to X:\I386. If your always having to manually re-point, it could be that is the problem.
You could also copy these files anywhere, even a lettered USB stick and change the registry pointer to that. There is an advantage to being stuck manually entering the path though, things do not occur automatically, so the human has to be present before anything would be installing undesirable or possibly insecure elements of the OS for any nefarious purposes.