Thank you. I try to provide solutions or at least an explanation of why things do what they do. Computers are more fickle than women sometimes.
Who made the drive? Hitachi, Seagate, Western Digital? I would put the drive into the laptop and download the manufacturer tools. This will be the best way to test the drive itself. Their tools will say directly "your drive is ****ed".
Otherwise, it sounds as if the restore discs are hosed. If they hang when you try to install, it probably has an issue with creating the MBR or something else. Are the discs scratched? That will cause the system to hiccup and possibly not recover. Do you have a regular OS install CD? Try that and see if you can get it to install at least. If that happens, you probably have failed restore discs.
Good luck.