I dunno about Asus Bios (i'm running abit), but I think maybe you skipped a step. You set bios to raid (as opposed to IDE or AHCI, which is a protocol acronym for new fangled sata HD handling, such as Native Command Queing, etc.), correct?
However, after that but before installing os, did you enter the Intel sub-Bios using CTRL-I (pressed either after exit Bios or as BIOS loads, I forget, but you'll see it when the Intel Matrix sub-Bios load screen appears)? You didn't mention it in your post, so not sure if skipepd this or just didn't mention. Anyway, the Intel sub-bios is where you actually set the RAID array, by setting raid type (0,1,5, etc.) select the drives to populate raid, select stripe and size, etc., then save all. See, as I understand it, the Asus Bios only enables the chip to Raid, you then gotta go into raid sub-Bios and set it. Then the system should "see" it.
try that if you didn't already, or at least that's how it worked on ABit mobo/bios, your's shouldn't be tto different since both intel based (although mine 975x, yours 965x?)
Don't know about the newer boards, but on my older Asus boards you had to set the controller to RAID, as well as changing the boot order to ensure that CD/DVD drive comes before your RAID setup as well as making sure that your RAID settings are correct in the RAID bios as well. You also mentioned that when you keep getting the Didn't find a mass storage device. That indicates to me that the drivers you have on the floppy are either courupt, or not the correct ones for the version of windows that you are trying to load. I would make sure that you download the newest drivers, put them on a known good floppy and try it again.
I agree with 430752, it sound like you haven't set up the array yet. After you set the BIOS to RAID (with includes AHCI functions, BTW) reboot, press Ctrl-I when prompted, and set up the array before attempting to install Windows.
a) Setup the RAID array
b) Set the computer to boot from the Windows installation CD
c) When installing Windows press F6 to install the RAID driver
d) Get Windows to format the RAID array,
e) Install Windows
f) Go back into the bios and set the computer to boot from the RAID array