Try the following steps one by one (in this order). Test the floppy drive acess using a good diskette after performing each step.
1. If SmartDisk FlashPath Monitor from Synchronized Technologies is installed, uninstall it.
Q817196 -"Floppy Disk Drive Does Not Appear in the My Computer Folder"
2. Check in the registry for UpperFilters and LowerFilters. If exists, right click each one, select Delete. For details, read:
Q812489 - "The Floppy Disk Drive Is Missing From the My Computer Folder"
3. Click Start, Run, type regedit and press Enter. Expand the following path:
In the right pane, look for ImagePath and check if its value is system32\drivers\flpydisk.sys.
If it is different, right click, select Modify and type system32\drivers\flpydisk.sys
4. From regedit, expand the following path:
In the right pane, look for ImagePath and check if its value is system32\drivers\fdc.sys.
If it is different, right click, select Modify and type system32\drivers\fdc.sys
5. Boot in Safe Mode. Goto Device Manager. Right click Standard Floppy Disk Controller. Click Action, select "Scan for Hardware changes". This will redetdect and reinstall both the controller and Floppy disk Drive.
6. Insert a good bootable diskette (at least windows 98 is preferable). Make sure that in BIOS the first bootable device is floppy diskette. Restart PC and see if it boots from diskette.
7. Take the problem diskette and see if it reads on another PC (windows 98/Me preferable). If it reads there and not on windows XP, then your diskette was formatted probable 10 years before. Save its content on another PC's hard drive. Format it there and see if it reads now on Windows XP.
8. At this point the Floppy Drive could be the cause. So, you should replace it with another good one.
Trying to unweave, unwind, unravel
And piece together the past and the future,
T. S. Eliot