Are you "hitting any key" when prompted to boot to CD? It may be too fast so you must be fast with your fingers as well!

Two things left to try:

1) use an old windows ME boot floppy (since you have a floppy drive)

a) download the file @ Windows ME Boot Disk Download | AllBootDisks - Providing Free Boot Disks from MS-DOS to Windows XP.

click on the "automatic boot "disk file and then select the "WindowsME.exe" file and have a blank...formatted floppy ready and follow the prompts.

b) reset your computer's boot order to boot to floppy drive first and reboot with the disk in the floppy drive. After the set-up has finished there will be an
A:\

type the following then hit enter format c\s
if asked to support large discs answer yes. and then choose fat32 as the file system....when you reinstall the operating system it will reformat to NTSF.

2) Remove the drive from that computer and slave it to another then use disc manager to format the drive.

Note here****
I am not sure what it is you are doing wrong but I have never seen any windows applications override a boot CD before....the boot CD sets up a virtual drive and has no connection to the actual harddrive as it is set up using memory only by the BIOS....thus the harddrive is not even used till the proper instruction is given to use the harddrive.

There may be one explanation as that you may have a BIOS virus and if so then you had best be looking for a new motherboard or replacing the BIOS chip itself!