When trying to install Windows, the on-screen instructions tell me to insert the Windows CD. But, then it stops. The laptop won’t recognize the CD.

I recently got a PCG-R505EL laptop from a friend with floppy and CD-ROM dock but sans hard drive. He claimed the hard drive went bad so he tossed it but ended up getting a new laptop rather than fixing this one.
So I figured I’d give it a shot. I got as far as putting a new hard drive.
I made some boot disks for Windows XP and Win2000 and ordered the Sony recovery CDs for this specific laptop.
Problem:
When I tried to boot up with the new hard drive installed, the screen remains blank and then spells out “GRUB”. I guess this means my friend had Linux or something installed.
So I decided to try to install Windows. When trying to install Windows, after I get to the last of the boot floppies, the on-screen instructions tell me to insert the Windows CD. But, then it stops. The laptop won’t recognize the CD.
So then I figured it might work if I restore the original BIOS. But I don’t have a clue where to look on the restore CDs. I went to the Sony website and they do have an installer program to reinstall the PCG-R505EL’s original BIOS but the program also requires that you run it on that computer.
So, here I am.
Any suggestions you could give me would be greatly appreciated.

You are right, GRUB is a boot loader and people use it for multiboot systems. But you shouldn’t have any loader installed on your hard drive, because as you mentioned it’s a new one. Even if your friend had Linux, it’s shouldn’t affect you in any way because his hard dive gone.
Make sure that the Windows CD you are trying to use is in good condition. I would try to boot the laptop from any other bootable CD, to figure out if the CD-ROM drive works at all. If you don’t have a boot CD, you can download and use Hitachi Drive Fitness test utility. You can download a CD image file from their website and burn it on a CD. After that try to boot the laptop from the CD you just burned. If it boots fine, you also can use this utility for testing the hard drive. If it will not boot, them you might have a problem with the drive itself or a bad connection between the laptop and the dock station. I would probably try to reseat the drive just in case if there is a bad connection between the drive and the dock station.
I’m not familiar with this model and not sure if you can disable/enable the CD-ROM drive in BIOS. Enter the BIOS (SETUP) and see if you can somehow enable the CD-ROM drive. To enter the BIOS try F2 or F3 keys on start up.