This error arises when the System registry hive is either deleted or corrupt. System registry hive contains configuration information necessary for the system to boot.
The first thing to try is to run chkdsk command from the Recovery Console and then reboot the system.
If chkdsk does not solve the problem, then the System file should be restored from backups. There are two places to look for the backups, one is the System Restore folder and the other is \Windows\Repair folder.
From the Recovery Console, navigate to the folder \System Volume Information of the root drive, using the command:
cd "C:\System Volume Information"
Here, locate and navigate to the folder whose name begins with _restore using the command:
This folder contains many subfolders which have names of the form RPxxx, where xxx is a number indicating the restore point. Locate an RPxxx folder which has the highest number as its suffix (highest xxx) using the command dir command. Then navigate into that folder using the command:
cd RPxxx (don't forget to replace xxx with the corresponding number!)
Now, there will be a folder named snapshot. Navigate to this folder using the command:
There should be a file named _REGISTRY_MACHINE_SYSTEM, copy this file to the \Windows\System32\Config folder with the name System using the command:
copy _REGISTRY_MACHINE_SYSTEM C:\Windows\System32\Config\System
Then reboot the system. This method works only when the System Restore feature of Windows XP is enabled.
While installing Windows, the setup backs up the System registry hive in Repair folder. If the System Restore feature is turned off, then this backup can be used to restore the System hive. From the Recovery Console, navigate to folder \Windows\Repair, using the command:
and then copy the System file to its original location using the command:
copy System C:\Windows\System32\Config\System
and reboot the system.
The disadvantage of this method is that, since the backup is created during the installation of Windows, by restoring this backup all the system configuration and driver installations made after it will be lost.