The above means that the data stored on the HDD is still there and not that the Windows OS is fully functional, was the computer booted from the HDD via the USB device, I ask this as the HDD having failed does not look to be the case at the moment, this based on the fact that the HDD works on another computer and that a replacement HDD works on the original computer which rules out bad HDD contacts on the MB as the cause, the only way that we can rule out a damaged OS on the original HDD is by trying to boot from it when it is connected to another computer and set as the first boot device, if it does not boot up ok then either the OS is damaged/corrupt or the HDD has bad sectors on it which in turn has damaged the Windows installation.
Long shot but try booting the original notebook from the original HDD when it is connected to the USB device.RE the replacement HDD, if the OS on the replacement HDD is registered to another persons computer it will be detected by Microsoft when the computer updates, to avoid being locked out by MS you must change the product key asap, "how to"
here please note that it must be the exact same version of Windows that was originally installed and not be classed as a change of product/licence etc.