It nevers prompts you for CD1 it asks you if you are going to install from CD and then prompts you for the drive if you more than one CD when you select and it comes back and says it can't find what its looking for, --- that's when you sort of get the clue to put in CD1.
I also found that if you elect to upgrade and use existing partitions it can't seem to find the root mount and keeps saying their is no root partition.
I backed up everything and I needed and just let it reallocate (wiping the existing partitions).
Incidentally, if you stick CD1 in a windows CD the autorun comes up with a
nice install menu and seems to work fine.