Sorry about the delayed response - had computer (and life) troubles of my own.

I did write the following while off-line and hope it helps.
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There's no tab to slide on the floppy, it came that way.
I'm glad, coz I would've felt bad had you casually let your boot disk get plastered over on my poor advice. It's not a great idea to write to your original master boot disks - says me who still thinks tab-less floppy disks should be illegal.

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The floppy seems ok and the problem starts after I insert the CD. I re-installed the system a couple of times before in the past without problems. I bought the computer new in '97. What is an ERROR.LOG?
I don't know what error.log is (or which program is trying to create it) or know enough about your HP/Win95 setup to offer any specific ideas. My earlier suggestions were typical DOS workarounds for "file creation" errors but in retrospect they probably won't be of much help, especially given neither disk has been altered and that you've successfully reinstalled in the same way in the past.
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I need help in these areas... It may also be that the program you're trying to run needs to create a file in a "temp" directory.
Many DOS programs save temporary files to the directory recorded in a "variable" named 'tmp', and will fail if either the variable, or the directory it points to, doesn't exist (or can't be written to, eg. the variable references a full or write-protected disk).
To check if a 'tmp' variable exists just enter the command '
set' (without the quotes) at the DOS prompt and look for a line beginning with "tmp=". If the variable doesn't exist you can create it by using the command line '
set tmp=a:\' for example, and if the directory it points to is invalid (as a:\ would be in your case if you use your original boot disk]) change it by entering something like '
set tmp=c:\'. (To "delete" the variable you'd use '
set tmp=', and to reference the text stored in a variable just surround the variable name with '%' symbols, eg. '
echo The temp directory is currently %tmp%'.)
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Try CD'ing to a writable disk first, like the RAM disk if one is created, then starting the cdrom program using its full pathname.
A common "9x" way to do a standard floppy/cdrom install of Windows is to boot up with a floppy, put in the Windows setup disk, then at the DOS prompt enter either
x:\setup ('x' being your cdrom drive letter), or something like
this:
x:\ (change the "current drive" to your cdrom drive)
cd x:\ (change the "current directory" to the root directory of your cdrom disk)
setup (run setup.exe)
The second method is generally the better approach but problems can occur if a program attempts to create a file (eg. a report or errorlog) in the current directory on a full or write-protected disk (like a cdrom). One possible workaround is to first change the current drive/directory to a writable disk, then start the program using it's full pathname, eg:
c:\
cd c:\temp
x:\dos\util\programNote though that some cdrom-based programs expect to both read from and write to the current directory, and to get them to work you may need to copy the entire directory of the program in question to a writable disk and start it from there, eg.
xcopy /s x:\dos\util c:\util\
c:\
cd c:\util
programMost Windows installers dump the required install files from cdrom to the 'c' drive (the intended boot partition) and eventually restart from that partition to complete the installation. The initial "current directory" is the root directory of the disk your system booted from (eg. "a:\" if you booted from a floppy disk) and it remains the "current directory" until explicitly changed from a batch file (eg. a:\autoexec.bat) or from the commandline, and while there's no default %tmp% assignment it's unusual for a boot disk not to create one via autoexec.bat. If issues are happening early in the boot process and you can't check the location of the temp or current directories via DOS try instead get that information by looking at 'a:\autoexec.bat' with notepad.
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...like the RAM disk if one is created...
A typical Win98 boot disk creates a "ram disk" (a portion of the computers memory is exclusively reserved for use as a high speed temporary disk) and uses it as the "temp" directory and to store other created files. Your OEM/Win95 boot disk may not create a ram disk and might instead use a directory on the hard disk to store temporary files. Ramdisks are mostly a luxury on hard-disk systems and in your case a waste of precious RAM so consider modifying any boot disks you create/use in future to either stop the ram disk from being created or to limit it's size (ie. ram usage).
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Would it be better or easier to just erase the whole hard drive and just start over with something new? If so I'm not sure how to do it.
Maybe there's a simple fix for the issues you've describe but a "clean install" (ie. reformatting the boot partition and installing a fresh copy of Windows on it) is still likely to be the better long term solution. That said, there's no simple fix if you
accidently wipe a hidden "support" partition (or format months worth of unsaved data, or scratch your cd, ...) so take care, and check out one of the many install guides available (on this site for example) before taking the plunge. (A complete reinstall would likely involve repartitioning and reformatting your hard drive, preferably with two partitions to make future reinstalls easier, and a search for "Ranish Partition Manager" would be a good start.)
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All I really need is the most current version of Windows that this computer will handle...
If you do upgrade try Windows 98SE. It's generally easier to strip down than 'ME' and more likely to handle modern hardware and software than Windows '98'. In any case try using less resource hungry alternatives to programs you might find yourself needing (eg. Foxit PDF Reader instead of Adobe Acrobat Reader, or use registry hacks instead of installing context menu extensions), and consider turning off any installed realtime virus/trojan/scumware scanners until they're actually needed (eg. just before installing a new program). Regardless of which OS you use don't use compressed disks (your Win95 system has one?) because they sacrifice RAM and processing power (you've got little to waste of both) for extra disk storage (which is relatively cheap and easy to upgrade these days).
If you instead decide to reinstall your HP/Win95 setup you might find
this link helpful, though I only gave it a quick glance and didn't check if it helps answer your previous questions.
Anyhow, I'm sure someone will chuck a spare P-200 your way if you keep flashing those specs around.

Good Luck.
Edit: I'm not sure if the version of command.com you're using includes it but you could type '
set' immediately after your floppy boot fails and see if a variable named 'cmdline' exists. If it does, it holds the name of the last external program run from that particular DOS shell, which may not tell you which commandline is causing you hassles (internal commands aren't recorded) but at least will help track down how far along the boot process you're getting. You may also find
this link helpful.
Cheers.