The error you describe suggests that the hard disk has failed. They aren't repairable (or at least they aren't worth the time and money of repairing) so the quick fix is a new hard disk. I've just found this one
on eBay for twenty-five quid and here are the instructions
for removing the old hard disk.
You can see it's a case of undoing 2 screws and sliding the old disk out. As it says in all the best Haynes manuals 'Refitting is the reverse of the removal procedure'.
That leaves you with a problem as you now need to install the operating system. Do you still have the original XP CD's? If not there is no legal way of downloading it from the net. Neither can I find any reputable retailers (Amazon, eBuyer etc.) still selling originals. There are any number of people selling copies but that exactly what they are, copies.
I presume you still have the Microsoft key on the laptop case? You could take a chance and buy a dodgy copy and hope that your key would work.