This information may help you:

SYMPTOMS
When you attempt to install Windows XP on a dynamic disk, you may receive the following error message:

Windows XP cannot recognize the partition you selected.

Setup cannot install Windows XP on this partition. However, you can go back to the previous screen, delete the partition. and then select the resulting unpartitioned space.

Setup will then create a new partition on which you can install Windows XP.
This error message also appears if the disk is corrupted or unrecognizable.
CAUSE
This issue can occur because Windows XP Setup cannot always install to a dynamic disk. Windows XP Setup can install only to a partition on a basic disk or to a volume on a dynamic disk that is a system or boot partition or that was previously "retained" by means of the Diskpart utility.

This limitation occurs because a master boot record (MBR) partition table entry must be present before a dynamic simple volume or a member of a mirror can be used during setup. Dynamic volumes that are created by Windows XP do not place volume information about dynamic volumes into the MBR partition table. In a Windows XP-based computer, dynamic disks store their partition or volume information in a database at the end of each dynamic disk.
RESOLUTION
To resolve this issue, use one of the following three possible resolutions.

Delete the Dynamic Partition and Recreate a Basic Partition

When Windows XP Setup deletes a partition on a dynamic disk, the disk reverts to basic. All dynamic volumes are deleted, and data is lost. Before it deletes a partition on a dynamic disk, Windows XP Setup generates the following warning message:

The partition you attempted to delete is on a dynamic disk. Deletion of this partition will make all other partitions on this disk unusable.

Do not delete this partition if you need to keep any of the data on any of the partitions on this disk.
Install Windows XP to a Partition That Resides on a Basic Disk or on a Retained Dynamic Volume

If another disk is installed on the system, a disk that is basic or that is a dynamic volume that has been retained, you can use this disk to install Windows XP.

When disks are converted to dynamic while you are running Windows XP, the only MBR information that is retained is information about current system and boot partitions. This is unlike Windows 2000, where all existing MBR information is retained upon conversion from basic to dynamic.

Use the Diskpart Command RETAIN to Create MBR Partition Information

If you have access to a Windows XP graphical user interface (GUI) that is already on the system, you may be able to use the Diskpart retain command to create the MBR partition table information.

The retain command prepares a dynamic simple volume to be used as a boot or system volume by writing the flag that states that the partition is retained in the dynamic disk database and then putting an entry in the MBR partition table for that partition.

On an x86-based computer, the retain command creates an MBR partition entry on the dynamic simple volume with focus. To create an MBR partition, the dynamic simple volume must start at a cylinder aligned offset and be an integral number of cylinders in size.
Pay special attention the to diskpart RETAIN resolution as I think that will most likely be the key that unlocks the door to success.
TAKEN FROM HERE

Keep us updated on your progress.
BB