System Recovery Gateway Netbook LT2016U

I have the LT2016U Netbook. A few weeks ago, my computer would not get past teh Windows XP screen. It would sit there forever. I started up using ALtT + F10. I did a complete recovery and after it restarted it says the following:

Windows could not start because the following is missing or corrupt:
\WINDOWS\SYSTEM32|CONFIG\SYSTEM

I ordered the Recovery Discs from Gateway, for $20+ and it did not work, as it kept kicking out the Recovery Disc and asking to insert it.

I am at my Wits End, and I need toknow some way to fix this. I have also tried F8 at start up, and there is no option for Repair, even though people say there is.

Lastly, I have tried Last Known Good configuration, but obviously that faile, too.

If someone can help me, I will be eternally grateful!