How about restoring it, and doing a repair install, does that work?
Have you tried restoring it and then running System File Checker, to see if there are any errors?
From the elevated Prompt Right click on the Prompt Icon and select run as administrator. Then type…
SFC /scannow
Scans and restores system files.
I see lots of people having this problem, the answers don't seem to fit your situation, every thing from the wrong ram voltage set in bios to the wrong disk format. The fact that it won't install Windows XP either would seem to indicate some problem in the hardware.
Try running Windows Compatibility test and see if it comes up with anything in the way of errors.
I know that it already runs Windows 7 but there may be something that will show why the install is failing.
You could try removing half of you ram and then the other half and see if that helps.
Make sure that nothing is plugged into the computer except your internet connection, mouse and keyboard.
Not your external hard drive, since you are having problems reading it that could cause a problem.
If you have access to another hard drive you could try switching them out if this is a PC and not a laptop.
What version of Windows are you trying to install?
This is hard to pin down, installing should be fool proof unless there is a problem with the hardware.
Mike
I found this...
In case anyone else comes looking for a solution here, I've had success by ejecting and reinserting the DVD after the hang.
Also try disabling FDD (floppy Drive) in the bios.