Well, you said that you installed the drivers from the cw cd. Uninstall it. These drivers are old and have some problems reading and writing disks. Use the latest dirvers in
http://siliconsonic.de/t/bin/CWMK40109.zipThose are the latest drivers and should be installed without problem. On the other hand, the problem of recognizing disks is a problem of the driver that is not yet implemented. I have also a catweasel mk4 and the recognition of floppies(amiga or pc) isn't possible from the os side(win xp). If you have another drive, use a drive exclusively for amiga disks and the other for pc tasks. I have the drive with the catweasel on the mobo controller, and i also cannot use it when the driver is loaded. By the way, this only happens when the system has loaded entirely and the driver is in memory, if you need, for example, to boot in safe mode or with a boot disk, the drive will function as always.
Hope this helps you. If you have another questions feel free to ask, where are in the forums for it!
Cheers :-)