The file system (rather than the physical data) may be damaged on the HD. Try this:
1) Boot the computer using a Windows XP setup disk. (It doesn't matter if it's Home or Pro or what Service Pack. A Win 2000 setup disk should also work.)
2) At the first screen where you can respond, hit R to enter the Recovery Console.
3) At the command prompt you will get, type the command CHKDSK /P
When CHKDSK is finished running (it may take a while), type EXIT and reboot from the HD. Windows just may start OK.
