It sounds like the CD-RW is having problems reading the disk. What happens if you disconnect the CD-RW - does this make everything OK? It may be worth checking if there is a firmware update for the CD-RW to make it compatible with XP as I believe that some of the older ones weren't supported (alternatively, they're as cheap as chips to buy these days). Have you installed the XP updates as well?
If the computer is still slow having disconnected the drive, I would be tempted to rerun the format reinstall process over to make sure that your installation is OK. Don't forget the updates. Er, I don't suppose that your earlier problems could be hardware related, could they?