I've had a couple of system32 errors on my home PC recently and after much Googling the fix was to boot from the XP CD and select the repair option. You may need to change the boot order in the BIOS to get it to boot from CD before the HD.
This worked for me once but the most recent episode ended up with several missing dlls that for some reason could not be found, so I did an "over the top" reinstall of windows XP and only had to reinstall drivers and updates but retained everything else. Working OK for now <fingers crossed>
HTH