an addition - i can't run a i686 xubuntu live disk either...
problem isolated - looks like something in a recent kernel disagrees with my hardware...
How did you fix it? So if anyone else comes across this problem they will know how to fix it.
Its something that i've actually traced back through to any mainline kernel above 2.6.31.xyz123.
I was able to get an old xubuntu 9.10 disk installed, and then tweaked with kernels, not all i need to do is track down the specific issues...
It also can be because of your CPU not supporting the kernel shipped with PinguyOS, Such As PAE etc..