Windows 7: Acer Aspire Desktop failed to restore factory settings

I have an Acer Aspire AX3400 desktop running Windows 7 64bit. I have been having all sorts of problems over several months. The machine, when left unattended, appears to be always "recovering from serious error" with subsequent memory dumps. The machine would not shut down without me having to switch it off. Subsequently the machine would not start up properly. iTunes would not open without a reboot etc etc etc. I decided to backup all my data and restore to factory settings. This has failed/ is incomplete. It hung for several hours at different stages of the process. I keep getting the message "Setting up PC for first use" and does not move on from there. I'm unable to run in Safe Mode because the setup hasn't been completed. I have a restore disk but this hasn't helped. Would really appreciate some help.

Did you try to restore from the disc or the recovery partition.

PS: My guess would be that one source of your troubles is iTunes. I have seen a lot of people having trouble with that.

Thanks for the prompt response WHS. I restored from the partition. I got the message that my drive would be formatted and that I would lose all data (including iTunes??) then it hung mid way when reinstalling the software. I left it for a couple of hours and switched it off and onm. It attemptesd to complete the installation and hung again. Currently it is stuck on "Setup is preparing your computer for first use" - for 3 hours.
I've tried inserting the restore disk but that doesn't appear to make any difference to what's happening.

That is not normal. There is something funny going on in this disk partition. I would clear the partition - either with Command Prompt from the installation disc or with the bootable CD of Partition Wizard. And then try again.

I would Check the hard drive with the manufacturer's diagnostic tools.
Hard Drive Diagnostics Tools and Utilities (Storage) - TACKtech Corp.
HD Diagnostic

Once you've tested HD and wiped it to proceed, try Recovery Disks. What exactly happens?

What is the licensed version on COA sticker, as you may need to clean reinstall with Windows 7 Installation DVD which is always a much superior install anyway: Reinstalling Windows 7

Another option is to order Recovery Disks from Acer. If machine is less than a year old you still also have their Tech Support on it, which is pretty abysmal but could net you free Recov disks and even possibly a solution if this is a known issue with the model and they have it at the top of their script.

Thanks for the feedback/suggestions. After spending almost 24 hours (total) trying to resolve the problem I finally contacted the Acer Customer Support team. After explaining the issues I was having they immediately suggested that I return the machine, at their cost, to Sydney and they would install a new O/S!!! Unbelievable! I can only assume it's a known problem. So. Full marks to Acer support. Thanks again.

Amazing service. +1 for Acer.

Nice to hear. Thanks for updating us on Acer Tech Support.