HDD Problem- Dell Inspiron 8500

I've got a big problem with my laptop. When I power the system on, I get a black screen that reads:
PRIMARY HARD DISK DRIVE NOT FOUND- FIXED OPTICAL DRIVE NOT FOUND- NO BOOTABLE DEVICES-

When I enter setup, the status for the two devices reads:
PRIMARY HARD DRIVE: NONE
FIXED OPTICAL DRIVE- NOT INSTALLED

I called Dell's tech support and they say that it's the hard drive and that it needs to be replaced (of course they have some to sell me). My question, which they couldn't answer, is, if the problem is the HDD, then why is the system also failing to recognise the optical (cd) drive? Does the status, "NOT INSTALLED" for the cd drive on the setup menu mean that the system is actually recognising the cd?

Another question: if I decide to buy a new drive, I'd like to get one from a retailer other than Dell and install it in the old chasis. I'm wondering what specs I need to look at to determine whether a drive I see in the store will be compatible with my computer. Dell's description of my drive reads:
HARD DRIVE, 20GB, I, 2.5" FORM FACTOR, 9.5MM, IBM-CASCADE
How do I know if my computer is compatible with, say, this drive?:
SAMSUNG Spinpoint M MP0804H 80GB, 5400 RPM, 8MB Cache, Notebook Hard Drive, FORM FACTOR 2.5" INTERFACE ATA-6

I would greatly appreciate any help with this. Thanks in advance.

Thanks for the reply. To answer your question, it wasn't doing anything strange until yesterday- it booted up normally and then the system froze- it was very weird because I couldn't even access task manager (this is WInXp home). I never had a crash like that. Then, when I powered off and back on, It DID go to the hard drive and tried to access WinXp. I got a screen saying "Windows didn't shut down normally, etc, do you want safe mode or normal start up?" I tried safe mode and the system would start to boot Windows, then restart a few seconds into boot and I got that black screen with the previously mentioned "No bootable devices error." The strange thing is that maybe 25% of the time, when I turn on the computer, it will go to the hard drive and attempt to start windows and then restart itself. The other 75% of the time, it goes straight to that black screen and error message. I've tried reseating both devices. I know they're getting power because I hear the HDD spinning and see the light on the fixed cd drive. I tried booting my computer with the WinXp setup cd. When I put it int he fixed cd drive, I got that same old error message. However, I have another cd drive in the media bay- when I put the WinXp disk in THAT drive, it starts the WinXp setup program (of course, the setup program can't locate the HDD.