UPDATE:
After a lot of hassles and help from the TE members (especially virus32win), I've managed to recover all my data (although in a very lame and safe way)
As the thread says, my onboard audio had busted (it is still not working), I had tried a live CD (a very old DIGIT Linspire bootable CD) to boot and check the hardware. This was done to eliminate any XP software/driver problems. Somehow it didn't go all the way and showed me the display when I booted in linux. Being a person for whom linux is still a little bit of Greek & Latin, I did not try and pursue that problem and thought about going back to my XP (installed on 320 GB Sata with 4 partitions).
Surprisingly, the disk did not now boot into XP at all. It seems that the MBR was modded when I tried the bootable DIGIT cd and hence it did not go back into XP. Now I thought that I may have to repair the bootsector so I tried booting using a XP installable and doing a fixboot, etc. But it did not help. Also, in XP i was not able to run a repair boot as it showed only a single unrecognized partition of 120 Gb instead of 4 NTFS partitions.
I had no clue what to do. Then virus32win recommeded running a few softwares. Finally I googled for a software called Active@partition recovery which allows you to make a bootable and recover your partitions. I tried that and it recognized all my partitions but despite all this the OS was not able to boot neither was I able to install XP on my first partition (to save the data in the other partitions) from a bootable CD.
Then I finally decided to buy another HDD and install XP on that one and then recover partitions on this disk. Amazingly, after going through all this, I thought that I had an old XP installable, which does not recognize HDDs of large size (can someone confirm that this is a fact?). When I tried a new XP trial edition, it did recognize all the partitions at boot time itself (when it asks for installing XP on a particular partition).
Finally, managed to install XP on the new HDD and connected the original HDD as an additional disk. Now I have all my data back on the original disk and am in the process of setting up my freshly installed XP.