Don't confuse a hidden partition with the hidden sectors used for bad sector recovery.
The hidden sectors you can safely ignore. That's a private conversation between
the controller and the drive, and is not software accessible. It is not an issue.

If there is a hidden partition, such as the kind used by COMPAQ, it will be defined
in the partition table, and will be deleted when you fdisk the drive. The installer
does this at the stage where it asks you if you "want to use the whole drive"
or some such question.

If you delete the hidden partition on a COMPAQ, you can't get into the BIOS
setup, but I take it this isn't even the original motherboard, right?
So that isn't an issue either.

You probably didn't start this whole thing without scandisk, or some other test
of the media, did you? Then it isn't a bad sector.

There is most likely nothing wrong with the drive, since you successfully
installed another OS on it.

You have probably discovered a rare incompatibility between the drive/controller
and the XP installer. Maybe the installer wants to connect to the net to
get the driver to solve this incompatibility.

Maybe it is demon possessed.