When I first installed XP my floppy drive was giving weird errors, couldn't be read, etc. Turns out the beta sound card drivers I had installed conflicted with the floppy drive. Removed the drivers and everything worked. So maybe you have some conflict with a driver or something. Unfortunately, there's no easy way to find out. I had to reformat, reinstall XP, test the floppy, install a driver, test the floppy, install another driver, test the floppy, and so on until I found the conflicting culprit.