Ok there is other ways of doing this.
First clean the C: drive by logining in to the Windows XP Home and run CHKDSK (check disk) to do this in the My Computer right the C: drive and choose Properties and then go to Tools tab --> Check Now.
NEXT Now try to install the Windows XP Home on the C: drive to do this do the following.
Step 1: Boot your computer press the <DEL> key to enter setup during bootup, set to boot from the CD-Rom drive. Save and Exit setup. Insert the Window XP HOME installation CD and then Restart.
Step 2: Press the any key when asked to do so to boot from the CD.
Step 3: Installtion CD will automatically load drives and set environment for installtion , accept the EULA and do the partition (choose C

and allow the installtion to format it as NTFS (full format) and processed with the installtion, answer the questions asked during installtion.
Step 4: U are done.
(NOTE: Do not press any key the second time your computer automatically re-starts after showing a message that it will re-start after 15 seconds. Leave the system do what ever it wants don't touch your keyboard this time.)
If in case u still cannot install Windows XP Home on the C: drive there is one more way to do this ( this method will work even if the MBR is corrupted or the harddisk has bad sectors ).
For this type of install u will have to first prepare your computer for such an installtion. Do not delete anything from your computer.
Step 1: Log on to your already installed Windows XP Home (D: drive).
Step 2: Connect your PC to the internet and go to the Microsoft Website.
Step 3: Visit the following link and download the setup utility
(click here).
Step 4: After u download get yourself a set of 6 New Floppies (IBM Pre-Formatted ) label the floppies 1 to 6.
Step 5: Run the downloaded file , when asked insert the floppies one by one do remember to insert according to the number you gave to the floppies this is important here.
Step 6: Go the BIOS/CMOS setup by restarting your PC and set the system to boot from the floppy ( allow bootable floppy seek). Now insert the first floppy and re-start your PC.
Step 7: U will see the SETUP screen similar to the one when you use the installtion CD, do as instructed on your screen and insert the floppies one after the other (in order) as and when asked to do so.
Step 8: Finally insert the installtion CD of Windows XP Home and press enter when u are asked to do so.
Step 9: Rest of the installtion is similar and u can install the OS now.
Step 10: Once u successfully install Windows XP Home on the C: drive, format the D: drive to free it up.
Note: BACKUP your important data before installing.
Hope this will help u out. Please tell me it helped or not.