I also followed bsimser's instructions and got the same error SO I tried a different driver and it worked! Use the CBENDIS.EXE that comes with the XBEM_314 driver but follow the rest of the directions exactly and you will not be disappointed.
Why aren't you using NTFS? Converting to NTFS should free up some space. From a command prompt type - "convert c: /fs:ntfs" and on your next reboot it will convert the file system.
If you can get into the Recovery Console then you should be able to run a fixmbr and then run a repair with the cd. The repair process should find your installation. Try this site http://www.ntfs.com/ntfs_recovery_concepts.htm It helped me out with a similar problem when my XP/Win2k server...
Go into the Control Panel, System, Startup and Recovery Options and make sure the Automatically Restart box is unchecked under the System Failures options. Check the Event Viewer for errors and this will likely give you a clue as to the offending driver, service, etc.
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