Windows 7 installer is on a DVD, not CD. Set accordingly: http://pcsupport.about.com/od/tipstr.../bootcddvd.htm
Make sure your IDE HD registers correctly in BIOS setup.
For the cleanest install, use Custom>Drive Options to delete all partitions, create New one(s) as you wish, then format before installing Windows 7 to first partition.
Suggest you don't have old HD plugged in during install as it will establish a dual boot with SYstem MBR on old HD. You can plug it back in later to copy over files, giving it a letter in Disk Mgmt if it doesn't show up. Clean Install Windows 7
Another option is to save a Windows 7 backup image of the failing HD externally, then reimage it to the new HD using booted DVD Repair console>Recover using an Image. Backup Complete Computer - Create an Image Backup