Well that definitely sounds like an OS related problem. Her files should still hopefully be in tact, but it depends on what happened before to cause the error.

In your original post it mentions that you tried booting from the CD. Did you run setup from DOS or actually configure the BIOS to boot from CD?

The startup disk should really have been made when installing XP. This post has some info on booting to the XP CD for setup/repair...

https://www.techzonez.com/forums/showthread.php?t=8666