You are using the Upgrade version. It is asking for the old CD so it can 'verify' you have an old version and therefore you can use an upgrade.
If you formatted your drive, borrow an xp cd from someone. If you didnt, get the torrent for a working sp2 version.
download
http://bitcomet.com
go to :
http://torrentspy.com and search for SP2, look for one that has a lot of seeders and download it. After its down, burn it to a CD and use it to install.
I just grabbed the *fixed* one and it works great.