I have managed to fix this problem. Seems that either the ISO is corrupted (but the MD5SUM is OK!) or I can't burn the ISO for some other reason. I therefore extracted the ISO files to my PC.
However one of the file names (in topic above it was the ibsdl1.2debian-pluto-oss_1.2.7+1.2.8cvs20041007+pluto-2_i386.de). Since I had already burned the CD I simply renamed the file to the correct file name in the pluto cache folder. Then ran the install again and it worked!! So, temporary fix for others with install problems is to check the file names and correct them BEFORE burning the install CD.
Now onto the more interesting challenges of the rest of the install :-)