Here are the steps I'd try:
1) Uninstall Cryptainer and any virtual/doze crap like Pinto2 said. See if it works then.
2) If the problem persists, and you have a System Restore point before InCD or Cryptainer were installed, then go back to that point and try again. Note that if do that, any programs that you installed after that restore point will not work anymore, but their folders and files will remain on your hard drive. System Restore is more like a Registry Restore, so you'd better uninstall any such software BEFORE you run System Restore in order to to make sure that their files are gone from your hard disk.
3) If the problem still persists, reinstall WinXP. Don't do a repair installation, you must boot from the WinXP CD and make sure that you format your C: partition before proceeding with the installation. As soon as you're back in Windows see if the problem still exists BEFORE you add any additional software.
4) If that's still no good, then install the drive in someone else's PC (preferably a system with a different mainboard to your own), and see if the problem is still there. If you don't know anyone with a computer, then RMA the drive anyway, when the replacement arrives make sure you don't flash it with any newer firmware, just install it and see if it displays the same symptoms.
5) If the problem is still there with your new drive too, then it could be some kind of conflict between the drive and your motherboard. Not all motherboard chipsets and their software are created equal when it comes to burning, and conflicts have been reported by some users in the past.
It could also be something more mundane, like a poor quality PSU or a faulty IDE cable. Try installing a desent PSU of at least 500 Watts and also replace the IDE lead with a good quality one. I'd recommend Akasa or Belkin (but there are other good brands too), just make sure the cable is of good quality with decent shielding, relatively short, and at least ATA66-capable.