Netbook will not start; displays that System 32 is missing

I have an Acer Aspire One Netbook, which was running Windows XP until it crashed about six months ago. For a few weeks leading up to the crash, I had noticed problems with my computer - my webcam stopped working, some programs were disappearing, and my virus scan wasn't working. I downloaded a new virus program and it found nothing, so I assumed nothing was wrong.

I assumed wrong. One morning I went to turn on my netbook and it displayed the following message to me:

I have a Windows XP Installation disk from when we updated our old desktop computer. However, it won't seem to install, so I want to know what you think I should do. I have spent hours on the phone with both Acer support and Windows support and they cannot figure it out. I just need my netbook back, I do not even care about the files that are on it anymore. I realize they will be lost.

Thanks in advance for any help!!!

How do you install Windows on this Netbook? Do you use a flash drive or external CD drive?

I have a USB CD drive, and I was told by microsoft support that all I had to do was run the CD. However, I have since realized they're ******. And now I am here.

Okay, boot from the XP install disk. Let the install get to the screen gets to the existing partition(s) and choose to delete the one(s) you see. Format using quick NTFS

If you can get in, the information here might help:

How to recover from a corrupted registry that prevents Windows XP from starting:
http://support.microsoft.com/kb/307545

Malware might have cause the corruption and that can be handled after you get in.

The Microsoft techies probably don't have a card to read that netbooks don't have a CD Drive!