I'm certain others will address your specific problem, but if it were me I'd do the installation from an external CD/DVD drive since your DVD drive is spoilt. I've just had better luck with an external drive ... YMMV.
I also had the same error this week with an old dell desktop. My USB is a Sandisk and boots fine off my laptop as well. ????
Did you managed to find a solution for the error on your desktop? Hmmm i install ubuntu 10.04 temporarily on my laptop now as i can't seem to install any windows OS using a bootable usb (tried win XP too). The funny thing is, i installed ubuntu using usb. Since i'm using ubuntu now, is there a way to install win 7.iso on my laptop hard drive? What i did was i tried running the setup.exe using WINE but was unsuccessful. I did a search and realised i can't install windows that way. I'm a linux noob btw