Lsass.exe error on Windows XP laptop

I'm having trouble with my IBM Thinkpad which is running Windows XP.

The problem started with a message saying that \\WINDOWS\\SYSTEM32\\CONFIG\\SYSTEM was missing or corrupt. Now I am getting an lsass.exe error saying that the password is not recognized. Then the computer reboots. The cycle continues until the battery dies. I've done some searching on the internet and tried the following things:

Booting into safe mode and safe mode with command prompt - still gives me the lsass.exe error

Choosing the "last known good" option - BSOD with 7B stop message

Using the windows XP disc and choosing windows set up - this option brings me a screen saying: The following list shows the existing partitions and unpartitioned space on this computer. It shows one partition: c: Partition1 <IBM_PRELOAD> [NFTS] 34743 mb < 3108 mb FREE >. Choosing that option warns me that I'm trying to install windows in a partition that already has windows installed. I didn't continue.

Using the windows XP disc and choosing repair - prompts for the administrator password. I didn't set a password, so I hit enter which tells me the password is not valid.

Is there anything else I can try?
Will I lose my data if I choose to install windows in a partition that already has windows installed?
 
Yes, you will definitely lose all your data if you do a complete reinstall of Windows on that partition. However, if you do a repair install of Windows your data should be safe. That said, if possible, you should always back up your data just in case.

Besides the repair you tried there is another repair you could attempt. You stopped short of that when you declined to continue when given the option to install Windows in the partition that already had Windows installed. If you went ahead and chose that option, you would be presented with more options including a Windows repair. Try this one.

For some reason, if you do not see a repair option, then don't continue.
 
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