Its not a problem,
The ATAPI.sys is the driver for the EIDE Interface on the motherboard that the HDD plugs into so without that driver working correctly there is no way to boot into windows however, you can move the file to another location say on your D: drive and then you can repair windows using the installation disk.
the command to move the file in the recovery console is:
"move C:\WINDOWS\system32\drivers\atapi.sys D:\atapi.sys" (without the quotation marks)
Make sure that what is capitalized above is capitalized when you type the command or it will not work!
next you repair windows:
NOTE: before you begin make sure your windows CD is not to scratched up or the repair will fail and you will have to start with a clean install from another disk. Also You should also locate the Windows XP product key to your copy of Windows XP. This should be done before you do the repair installation. (you shouldn't need the product key to do a repair installation but it's good to have it just in case you find yourself needing to do a Clean Installation of Windows XP later).
Even though a repair installation does not alter any programs or data, other than Windows XP itself, on your hard drive, I highly advise that you take precautions in the rare event that something will go wrong and you lose data. That means that if there's anything you want to keep you should back it up to a CD or another drive prior to beginning this process.
Some things to consider backing up that usually reside on the same drive as Windows XP include a number of folders located under C:\Documents and Settings\{YOUR NAME} such as Desktop, Favorites and My Documents. Also check these folders under other user's accounts if more than one person logs onto your PC.
1 boot from the XP disk and hit enter at this screen (not R even though it says repair)
2 hit F8 to agree to Microsoft's terms and conditions for using windows.
3 at this screen hit R to repair your windows installation.
4 Windows XP Setup will now delete the necessary system files from the Windows XP installation that is currently on your hard drive. This step usually only takes a few seconds and no user intervention is necessary.
Note: No data files like word processor files, spreadsheet files, music files, photos, etc. should be deleted during this process. Only system files that Windows XP is able to restore are being deleted.
Windows will replace missing and corrupted files at this point
when this is completed you will need to go through windows onscreen prompts.
I would be surprised if this does not fix the problem.
Good luck.