Alright. Insert the XP CD. Get to the Recovery Console and do a check disk.
The command should be chkdsk to do it. Run that on the C:\ drive which should be the Windows Drive. That should help fix up the NTFS file system and maybe even prevent you from having to format at all.
If you do not have a XP CD handy boot into Safe Mode or normal mode and do this:
Start>My Computer>Right click on the Windows Drive>Properties>Tools>Error Checking. Click the Check now button. Taht will prompt you to say that it will not be able to accomplish the task now (Cause the system is in use) and will do it next reboot. So restart and it will do the check disk.
Post back after that and we will see where we stand.