It only works for CD as far as I know. I almost always use Nero as I've had a few misc issues with the default Windows writing.
Ouch, it sounds like to me you had some bad sectors on your old hard drive that had the system files on it. Did you ever attempt to boot into safe mode and do a restore?Any tips on how I can do that?
As far as getting your other files, you should be able to access them even if the account was password protected, unless you used encryption - then you might have a problem.
Sorry I don't have any other useful advice. I have a pretty robust backup routine so whenever I have a Windows problem... I just blow it all away and reinstall from scratch which still sucks, but it's better than messing around to fix a hosed install.