If your drive crashes at mup.sys (common), your drive is not dead at all. You just have harddrive errors or a corrupt windows install. Your files should all be fine as long as you did not select the option that wipes and repartitions the drive but tried to do a repair install.
A windows install can also freeze because of bad ram but I would first run chkdsk /r
It can also be that the burnt disc is bad or your optical drive laser is dying but these are less likely.
When you put in the XP CD, can you goto recovery console instead of initiating the repair install? Goto the recovery console via booting with the XP CD and type chkdsk /r at the command prompt.
At the end of this video is when you should type chkdsk /r and hit enter.
This is a pretty easy fix and your files are more than likely perfectly fine. If your laptop is 5.5 years old, I'm guessing it's an old IDE PATA drive and you just need an old laptop drive enclosure or an adapter to hook it up to another system. You can save yourself the problem of buying an adapter by using an OS on a USB device and booting from that on your laptop though.
http://www.memoryexpress.com/Product...X1542(ME).aspx