Are you sure the cd drive is not bad? Even though it shows up in the BIOS, it may not be functioning properly.
I was a tech for a dozen years or so, and I have run into similar problems before.
I have seen cd drives go bad and make the system act really flakey (i.e. the mouse acting weird or very choppy video, etc.). I have seen bad drives cause just what yours is doing - making it so Windows can not load. Sometimes it only happened if a cd was in the drive, but sometimes just having the drive connected caused problems. I have even had it happen with a brand new drive, right out of the box.
You mentioned a bootable flash drive. Is it USB, or a memory card that goes in a card reader?
If it's USB, the BIOS should have an option to allow booting from a USB drive. It won't be in the boot options, but perhaps the advanced setup or peripheral options.