New hard drive, can't get it to read CD

My friend upgraded his laptop to 100gig, and to return a couple favors he just gave me his old 40 gig drive for my ibook. I put in my panther CD and turn the laptop on. It will get to the apple screen with the little pinwheel at the bottom. THen the apple turns to a crossed out circle and stays there. Is this a problem with the CD or Harddrive? Or maybe its looking for the hard drive and won't boot because it can't find it.

This happens on YOUR laptop, or your friends laptop that he just upgraded?

Are you holding down the "C" key to boot from the Panther CD?

My laptop. His laptop is a Compaq. But the HD in my last ibook went, and I took the 40 gig out of a busted HP that I had.

Yes, im holding down the C key. Should I hold it until setup comes up?

I tend to hold the C key until I know it is loading from the CDROM, or until I get the first splash screen.

The drive will spin, and it will sound like its reading the CD. Then you hear it slow down, and the crossed circle comes up and it sits there, beachballing.