I've been a computer engineer for over a decade, trust me, this box is nowhere near unusual or any different from the thousands I've set up.
Plain XP Pro with a NTFS partition, minimum of a gig free on both drives, and nothing more remarkable than that. I tend to doubt it would be giving me a c: full error if it was something wrong with my machine, when I'm not even downloading to c:
The fact that you are a computer engineer makes me even more suspicious that its something "not usual" with your computer.
I'm not saying its broken or something but i to being IT professional turn things on and off that your typical user does not get into.
I bet you a beer that if you did a clean image of xp or whatever your os is you would be able to install with no problem at all.
have you tried installing it on a VM?