you probably have a drac card in your system, go into the drac and disable the virtual media, complete your setup and then re-enable.
Trying to install Windows 2003, it just hangs at the Windows Setup screen.   Funny thing is that setup will run from Windows 2000, Windows 2008, Windows XP I have upgraded all the firmware, changed the boot order, disabled all devices except the raid controller.  I have tried using the latest Dell server deploy CD and by booting to the CD itself.  I have tried Windows 2003 R2 both 32 and 64, I have tried Windows 2003 non-R2.  They all stop at the same place. If you boot to a Windows 2000 cd it will give you choices to hit F6 or other keys with Windows 2003 it is just the blue screen that says  Windows Setup. I have left it at this screen overnight so I know that it is hung [IMAGE]  
PowerEdge 1950 Windows 2003 hang