You said you had dual processors? NTKRNLMP.EXE is a special version of the Windows NT kernel that allows you to use more than one processor if your version of Windows permits -- and currently all versions of Windows except Windows XP Home Edition permit it.
Chances are, the copy of the multiprocessor kernel on the floppy disk got corrupted. That's what a 7 error usually means. So how to bypass this? At the beginning of the setup process, it asks you if you need to use any special SCSI drivers (scuzzy of them, I know ) by hitting F6. Two almost-entirely undocumented other features can be activated at that point. If you hit F7, then Windows Setup doesn't do any special detecting at all: it assumes your computer is single processor with no power saving features (you can change this later on from Device Manager) and no "wierd" SCSI drivers, just "normal" ones, and uses the appropriate kernel and drivers. If you hit F5, then you can select a specific Hardware Abstraction Layer and Kernel to use for the install.
When you start Setup and it asks you for SCSI drivers, hit F7. NTOSKRNL.EXE will get loaded instead of NTKRNLMP.EXE, and only a single processor will be used. Once Windows Setup is successful, and assuming you've got a Windows 2000 CD, you then open Device Manager, select the Computer object, select the item under it, and update the drivers to "ACPI-compliant Multiprocessor Computer." You will now regain your previous dual processor goodness.