Yes sounds like a corrupt hard drive causing a bad startup file.
On many XP installations you can't start the Recovery Console because it won't recognize your password. This registry edit causes the Recovery Console not to ask for a password. This works for both XP Home and XP Professional.
Start | Run | Regedit
Navigate to HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\WindowsNT\CurrentVersion\Setup\RecoveryConsole
Set the DWORD SecurityLevel value to 1
Exit Registry and Reboot