Be careful about putting in the Windows CD. When you get to the part about choosing a partition make damned sure that the size of the drive you select matches the size of the laptop hard drive so you don't wipe your computer's C drive.
But I agree, if you're plugging it into your computer in addition to your regular drive I think it's set to be master (which frankly I don't know how to set that on a laptop drive. I'd guess there's a dip switch).
Try unplugging your CD/DVD drive and plugging the hard drive into that cable. I'm pretty sure that if you've got two hard drives, both set to Master, but one plugged into the primary channel (likely marked IDE 0 on your motherboard) and one plugged into the secondary (IDE 1) that it will boot to the drive plugged into the Primary IDE channel. Once you've booted into Windows XP click on the Start button, right-click on My Computer, click [Disk Management]. You will see all of your drives, including your laptop drive. In the bottom section where you see "Disk 0", Disk 1", etc. find your laptop drive, right-click it and choose format (NTFS, not FAT 32).
That's only going to be a temporary fix, though, if you're planning to have it hooked up to the same cable as your main hard drive. You really need to figure out how to set the laptop drive to be a slave. Maybe the switch/jumper is on the enclosure.
If you can't get it to be a slave, but it works fine when plugged into the secondary IDE port, you can always pick up a PCI hard drive controller card that will give you a couple more IDE ports. They're really cheap if you don't need anything special like RAID.
But right now it sounds like the problem is that you've got two drives plugged into the same cable and they're both set to Master.