Let's try to see if we can correct the OS from within windows.
Go Start and then to Run ("Start Search" in Vista),
Type in: sfc /scannow
Click OK (Enter in Vista).
Have Windows CD/DVD handy.
If System File Checker (sfc) finds any errors, it may ask you for the CD/DVD.
If sfc does not find any errors in Windows XP, it will simply quit, without any message.
In Vista you will receive the following message: "Windows resource protection did not find any integrity violations".
For Vista users ONLY: Navigate to C:\Windows\Logs\CBS folder. You'll see CBS.log file.
Usually, it's pretty big file, so upload it to Flyupload, and post download link.
If you don't have Windows CD....
This applies mostly to Windows XP, since Vista rarely requires use of its DVD while running "sfc"
Note This method will not necessarily work as well, as when using Windows CD, because not always ALL system files are backed up on your hard drive. Also, backed up files may be corrupted as well.
Go Start and then Run
type in regedit and click OK
Navigate to the following key:
You will see various entries Values on the right hand side.
The one we want is called: SourcePath
It probably has an entry pointing to your CD-ROM drive, usually D and that is why it is asking for the XP CD.
All we need to do is change it to: C:
Now, double click the SourcePatch setting and a new box will pop up.
Change the drive letter from your CD drive to your root drive, usually C:
Close Registry Editor.
Now restart your computer and try sfc /scannow again!
Thanks to Broni for the instructions