Windows XP forum: Windows XP not booting up - changed environmental variables

Go get NTPASSWD and it has an offline registry editor. You can also use the microsoft KB article about loading the hive and editing it there. As you must be a guru I'll point what direction to go but stop short of a step by step.

The good news is their files are likely fine. Just pop in a new blank drive, reload and copy their files from the old drive then issue the bill for the work.
Bob

http://www.microsoft.com/resources/documentation/windows/xp/all/proddocs/en-us/environment_variables.mspx?mfr=true says they are stored in the registry. So restoring the latest backup from the registry is the thing to do.

A system restore back to before he did this should be fine, but can't be done from the recovery console. You need to boot into Safe Mode with Command Prompt to do that in XP. And I understand from you post that that doesn't work.

Booting from the XP setup disk should work, because that's independent from what is on the hard disk. Try cleaning the disk, a head-cleaner on the drive, copying the disk, another disk with the same version of the OS, or another drive. If you don't believe it should work, try it with another empty disk (wiped with DBAN or just with all the partitions deleted).

Kees