Unfortunately you hit the nail on the head, when you see messages like this it usually means there is a hardware or software problem. If you verified the MD5 sum on your iso image, then you hope the cd is ok.
Question is, can the CD reader you use in your SMEbox actually read the CD faultlessly?? (don't say yes, I've swapped many CD drives to make a stubborn system work!)
Next, just because the system was working in a windows environment, does not mean it's good for linux. Many times it is, many times you find that there are errors in your hardware, memory modules being indeed the most likely cause.
See if you can swap some, run on less/install with less memory etc..
The answer to your question is (un)fortunately really that simple. It tells you. Listen to your system!
So the short answer was: play with your hardware!
What I would do next:
Stick the diskdrive that you want to use in your SME in your most-favoured windows box. (remove/disconnect the orignal disks of course) that way you can try it on different hardware. If it installs properly, you know its your other hardware.
If not, could still be the CD, try different type/quality of CD, burn them SLOW. Always use 2 speed (it takes longer but they seem more reliable. I am speaking from a lot of experience here= other words for big bin full of blanks..)
hope this gives you some ideas..
Also, (maybe I missed this, sorry) give soem details about the hardware you use..)
have fun, and above all, don't give up after the first few tries.
kees