Any reason u want to use XP? - if u dont have W7, then with XP I'd get a fully updated version including SP3, install DotNet upto at least 3.5 (CF will add .net 3.5 anyways), update flash and other related OS to current where possible & all drivers. for your hardware.
Reboot then try to install CF 3.5
BTW, have u ever had Cf running on the machine ur attempting to install