System file corrupt/ Won't start windows XP

This is a problem that I had before. Out of the blue, I've got this message when I tried to start my laptop (Dell Inspiron E1705): System file corrupt, can't start windows... In the past, this happened to me and I obtained all the disks and drives to reinstall all the programs in my laptop but it's irritating that it is happening again. I run a diagnostic and two test failed: March LR and WCMch. I'll have to expend several hours re-installing the software and all the files I had in my C drive will be lost.

Can someone give me a clue as of why this happened? Virus? Malware? I had AVG running and I wasn't aware of any virus or malware.