It sounds like your drive is faulty - it should be replaced under your warranty. Especially since it won't let you boot from a standard (pressed, not burned) CD-ROM.
FWIW, I see this all the time when I'm repairing Xboxes. The laser picks up some formats and not others... and they come to me when they no longer read standard Xbox game disks. It's a very common problem on older xboxes, and it's easily fixed if you've got the right tools.