It just seems that if you are getting as far as a Windows logo, the drive isn't toast yet. It may be failing which is causing file errors though. I'd definitely find a way to connect the drive to a working computer and pull stuff off it first. Then run Scan disk on it to see if you can fix file system errors. If you can come up with someones XP setup disk, you might be able to do a repair installation.

Years ago, I diagnosed a computer with a similar startup issue. It turned out to be a bad memory module. It could also be a motherboard, video card or processor issue. I'm assuming you aren't seeing any difference if the system is hot, or has been shut off for a few hours.

On the other hand, all of this will take time to troubleshoot, and any hardware replacements will be feeding a dead horse. A new box with W7 may be your quickest and simplest option.