It is the hard drive because as part of the self test it tests the HDD almost much like a computer does and then mounts the hard drive's filesystem.
Out of curiousity were there any noticeable clicking sounds coming from the HDD?? If not chances are the filesystem is corrupted and cannot be mounted or could be a bad connection from the main board to the HDD or simply a bad IDE cable. My recommendation is to try reseating the IDE cable going from the HDD to the main board inside the machine and see if that helps. If that does not work then try replacing the IDE cable. If all else fails then the CF card mod is going to be the only other solution.
Hope this helps
Brad