That is a great system, a good base for lots of upgrades. That motherboard is really good, supports the 9xx series dual cores, up to 1066 FSB, very versitile.
Now the bad news.
You need a SATA HD
The ICH7 is not that friendly to old technology. My P5WD2 uses the same set-up. Luckily I recognized this when I built my sister's system using the P5LD2 and got her a SATA up front. This is a complaint I have about how these boards are listed. Even on the ASUS site it does not mention this problem unless you root around in the forums. There are listed as having 3 ATA for 6 devices......but that's technically not correct.
The 2 red buses, down on the bottom of the board are for storage only, they can not be connected to any boot device, and actually don't even recognize Optical drives (like a CD or DVD drive). They also don't even work unless you load drivers for them during the Windows install using F6 (you have to load the drivers from the CD onto a floppy and right at the start of the install it says 'Press F6 to install 3rd party drivers').
The blue bus, coming off the side, is for Optical drives and can be used to boot from. I have not tried attaching a PATA hard drive to that bus as I have 2 optical drives, so I had to buy a SATA HD, but in theory it should work, if you only have one CD/DVD drive.
Again, in theory, as I have not tried to load Windows on a PATA on one of these ICH7 boards.
The only thing I can think of is maybe change the setting for master/slave on your drives. I would think having HD as master for your configuration would be best, but maybe it has to be set as slave for the install only?
Of course, again, the best solution is get a SATA drive and use your old PATA as extra storage.