You could try booting from the XP CD and getting to the recovery console and then try 'chkdsk' to see if that finds any disk errors, if that fails you could try a repair install but that will still leave you with spyware.
If all of that fails, here is what i would do, i would create an XP 'live cd' just to get access to the files, i would then copy everything i want to a folder called 'backup' and delete EVERYTHING else, then in the xp setup make sure you select 'keep current filesystem intact' which will leave you with the back up folder and just install around it
To create the 'live cd':
- Grab PEBuilder (Bart's Preinstalled Environment (BartPE) bootable live windows CD/DVD)
- Copy the files from the XP disk over to a folder [using a different pc obviously]
- If you have an older XP disk with no service packs, you'll have to slipstream it [i can talk you though that if you like]
- Start PEBuilder and follow on screen instructions
- Burn the resulting image
I realise this is a bit of an 'around the houses' method, but it should work, if you need any help with it, just ask.