Hey guys...this problem has been solved. Spoke with mrpoptat over MSN and resolved the issue.
What had happened, is he got infected with around 20 or so viruses and it had corrupt a few of his system files, including hal.dll.
The windows recovery console idea didn't really work because he only had the Dell Recovery CD which just reloads the factory image.
The solution was to plug in the hard drive to a working computer with XP installed (home or pro, it doesn't really matter)
And then to boot up and copy the hal.dll file from c:\windows\servicepackfiles\i386 to x:\windows\system32 and also x:\windows\servicepackfiles\i386 (if it exsists).
Overwrite all files. X: is just the reference. replace X with the drive letter where the troubled operating system is isntalled.
While the hard drive was in the other computer, scanned the viruses and removed them all.
FYI - this is what the hal.dll file is all about.
HAL - Hardware Abstraction Layer
HAL is Microsoft's abbreviation for the Hardware Abstraction Layer, the technology and drivers that let the Windows NT, 2000, and XP operating systems communicate with your PC's hardware. HAL is one of several features--along with the NT file system (NTFS) that replaced the much less secure MS-DOS--that make NT-based operating systems more secure and reliable than Windows 95, 98, and Me.
HAL prevents applications from directly accessing your PC's system memory, CPU, or hardware devices (such as video and sound cards)--a method that can prevent many device conflicts and crashes. Unfortunately, HAL sometimes also slows or stops DOS games and programs, which need to load their own memory managers or control hardware directly for better performance.
With HAL in the way, developers must rewrite or even abandon their older software in favor of newer, HAL-compatible versions. Microsoft has pressured hardware makers to provide or support technologies such as MMX, DirectX, and 3D graphics language OpenGL, all of which allow fast but indirect access to the advanced high-performance features of video, sound, and CPU hardware. Such access also makes for a better visual experience when using Windows for Web and productivity applications; improved graphics performance is evident all over Windows XP's new user interface.
XP also offers some new compatibility-mode features that let you run programs meant to run under earlier operating systems, but, frankly, most DOS-based and even some Windows-based games simply won't work with the new OS.