The HDD doesn't have to recognise the CD at all, the bios is what reads you have a cd in the drive, and then bios automatically boots it up.
The Windows disc should be able to carry out all the installation unless of course its not a new windows. In which case, a bootdisc on a floppy is a better option to get it started. I hadn't heard of dos programs until now, but I wouldn't use it. It seems to be making it more complicated.
There should be no problems with that drive, and should be able to format, hidden files or not, and shouldn't need an external program.
if its a earlier windows like Win98 that needs a bootdisc, go here:
Simply download the appropiate Windows one, get a floppy disc, format it by right clicking the A: icon adn going to format, and then dragging the contents of the files (after unzipping) to the A drive, and then restart and try it.
A THING TO TRY IF THIS DOESN'T WORK:
You could try and format another way though. Insert a hard drive in as master, and the other one (the one that won't work) as slave, and boot up (the master must have windows on of course)
When Windows boots, right click the my computer icon on the desktop, and go to Manage. Now select Disk Management from the list, and right click the drive you want to format and select format from the list. After this has done, shutdown and put the one that wont work (now formatted) to the master again.
Next place the cd in, and when it boots it should look through things and ask you about where you want to install the partition to install. Usually C:\ and you should be able to press enter and go straight through, selecting not to call it a special name.
Then it should go through and finish and you should have a working windows.
I hope that idea helps and it works. If not, read the below
If that idea doesn't work, its possible you could have a faulty hard drive, or even a faulty Windows Disc. If you think any of these are possible (could be), you could use the guarantees I hope to get replacements.
i hope you can.