Just turn off the machine with that disc inside. Then power it up and after you hear the startup chime, hold down the C key until you see the grey apple. This will take you to the OS X installer.
When it asks for which language, select what you want. Then from the menu bar you need to click on one of the menus and you will see something called Disk Utility. Run that. Select the Macintosh HD and select the Erase tab. You will see a button called Security Options. Click that and select to "zero all data". Click OK and go ahead with the erase. This process will also verify that there is nothing physically wrong with the hard disk. This process on a 60 GB drive might take about 30 minutes or so.
After it is done erasing the disk, restart the machine again holding down the C key and then install OS X.
Let us know how it goes!