I just got my Dell Mini 910 with XP Home SP3 and was trying to reinstall the OS last night. I had experienced all of the symptoms you described here until this morning I decided to try a different drive to boot from, the first one was a DVD ROM, this second one worked, it is just a CD ROM and is older than the other! I was very surprised to finally get the "Press any key to boot from CD" option. Reinstall went fine, all is well again. Now going hunting for the 64 GB
SSD drive and a 2 GB RAM card :-)