Knoppix is freeware, you can get it here: http://www.knopper.net/knoppix/
If there are 2 IDE cables, have you tried switching the drive to the other cable to get it past blue screen?
I am thinking you may have to pull the drive and connect it to another computer as a slave (or cable select in slave position), then run CheckDisk to fix drive if possible (or load drivers if that is what you need).
The only other thing I can think of would be (1) a repair, or (2) a clean install of windows if boot sequence goes to CD first.
That is all I have for now, perhaps someone more experienced than I will drop by.
Here are a couple links that might help.
http://support.microsoft.com/default.aspx?scid=kb;en-us;Q228888
http://groups.msn.com/TheCompleteComputerResource/stop0x0000000aandstop0x0000001e.msnw
Good luck.
If so, and you can access files, you can use this to burn files to CD that you want to save (if burning works) - then a clean install definitely sounds like your best bet. Something must have been corrupted in the system folder if the explorer shell is not showing up.
Make sure you have the chipset, audio, video, and USB drivers available - or go to the individual manufacturer's website to download the current drivers and burn them to disc.
Install windows by booting from disc, delete the current installation partition, install Windows to a new partition. After installing, install any chipset, audio, video, and USB drivers you need.
That should do it, other than installing the software programs you use.
Good luck.
You could do alot through the recovery console and now since you have windows up, you could try to repair it, but by the sound of it, it would be useless and would take too much time

I at least wanted to put a comment
MGiff ...try ctrl / shift / escape ....if you can get the task manager up you can load your shell [explorer.exe] from there...that'll possibly give you your 'desktop'.
It 'might' just be the shell didn't load...
) and then all is fine.Since that machine only gets rebooted every month or two, I've never really tried to fix the root of the problem.
If you can't get explorer to load, and you've already run chkdsk, then you might need to do a repair/reinstall of windows. It'll reinstall Windows on top of itself and leave all your files and apps intact.
If you do decide to go with a reinstall, it should detect that XP is asready insstalled and ask if you want to repair it. That way you won't lose all the data and have to reinstall all your apps.
MGiff ... explorer.exe is in your 'windows' folder .... it's your shell....if you don't have that then you're well and truly lost.
typing 'explorer.exe' in the new task option in the task manager 'should' find/run it .... its location is [should be] known to the OS.
If it isn't there, or cannot be found then you have a failed and/or damaged install of the OS.
Re-install...
At least your friend will have a nice clean install after this.
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Problem is none of the drives in my working computers will match up to the dead ones so, well, you see my problem.