Have you tried this solution from MS:
a bit long but effective.
I have a terrible problem with my computer right now that I have absolutely no idea how to fix even after searching through many forums and help sites from Microsoft to HP to Cnet.
I tried to turn on my computer, and it came up with that it couldn't start windows because C:/windows/system32/config/system was corrupt or missing. I looked up this problem, but couldn't find a solution that made it work.
I have an HP 742c, running Windows XP Home Edition.
So I tried to use the second partition of the HP to recover the system=no good.
I tried the XP "last good config" option=no good.
I tried to the HP recovery disks I have from when I believed I had a virus (8 disk set)=no good.
I tried the Automatic System Recovery from the Windows XP install disk but when it asked for an administrator password niether my old "owner" password, or a blank password entry worked.
So now I'm trying to recover the info saved on it from placing it in an external HD enclosure and copying files until I can reformat the old drive and copy back selected folders - BUT!!!!!!!! the owner files say they are access denied so I cannot copy them! I'm guessing only a ghost image copy will work, but I wanted to know if anyone has a solution - especailly since I have access to the windows system folder now to easily replace corrupted files to the system32 or i386 folders.