* Open Steam's game list
* Right click on the game and click 'Delete local content'. The game will be moved to the not-installed list.
* Insert Disk 1 into your DVD drive and close Steam (File, Exit).
* From the Windows Desktop, click on the Start Button, (XP) click Run (Vista) type Run into the Start Search box and choose Run from the list.
* In the Run box enter the following:
c:\program files (x86)\steam\steam.exe -install E:
Replace E: with your appropriate DVD drive and Steam directory if they differ.
Press OK, Steam should now start the installation from the Disk 1 and will ask for Disk 2 a bit later on.
At the end of the installation process, there may be an update varying around 500MB.
Some people have also reported changing their Steam download region may help with any 'Steam server is busy' issues that may also inhibit installs.
You can change this in Steam > Settings > Downloads + Cloud tab.