Eugene's observations

Sometimes it is quicker to reinstall Windows than identify and resolve all faults. With Vista and later this has to be done by booting off the hard disk but in XP is can be done from the CD. However, if Windows is so corrupted that the repair option is not offered some small adjustments can make it return - although the omens for a successful repair are not good.

Boot to Recovery Console and then
copy {ODD}:\i386\ntldr C:\
copy {ODD}:\i386\ntdetect.com C:\
attrib -H -R -S C:\boot.ini
del C:\boot.ini
BootCfg /Rebuild

Now remove all hardware not essential for a boot.
Next time you boot off the CD you should have a repair option.

Before you launch into a repair of Windows XP make sure that service packs later than the level on the installation medium are removed, and that Internet Explorer is not at a later version than on the CD. Details at http://support.microsoft.com/kb/917964/

There is one other cause of repair failure that can be easily fixed: a corrupted registry hive. In this case just follow the instructions at http://support.microsoft.com/kb/307545/en-us