The subject behavior will occur if you start Windows Server 2003 Setup from MS-DOS AND you do NOT load Smartdrv.exe before running Winnt.exe, or you load Smartdrv.exe and use any of the following parameters:

/x
/c
/l
InitCacheSize
WinCacheSize
/E:1024

To resolve this problem, run Smartdrv.exe without any switches. You may have to modify Autoexec.bat to REM the SMARTDRV entry and run SMARTDRV manually.

NOTE: You can expect up to a 1 minute delay before files begin copying.