I have given this some more thought and reckon that the message that "Windows cannot copy iaStor" is because the directory path is wrong. I tried starting with missing out the c: then got to thinki ...

I too had the problem with the driver path so I omitted the c:\xpsetupcd as when the disk is burned this part of the path is not included. The setup still asked for the floppy but then it did not stop ...