"Setup can't continue." Windows 7 Repair Install

I've been trying to repair install Windows 7 (SP1) and every time I get to the second step (Gathering files, settings, and programs) it cancels itself and displays this message:




When I click OK, it brings me back to the desktop. When prompted, I do opt to install updates and it takes about a second then jumps to the next step. I do not think it is downloading anything in that time. I do not have any CMD access, I get 0xc0000142 when I try to open CMD. What should I do to fix this? If it helps, I have an XP install dual booted with this install.


SETUPERR.LOG
CBS.LOG

Have you installed all of the important and optional Windows Updates? It may require several reboots after which you Check for Updates until there are no more.

Is this by any chance the original HP factory preinstalled Win7 which is the worst possible install one can have of Win7, larded with bloatware and useless duplicate utilties which interfere with better versions built into Win7? If so I would strongly consider a Clean Reinstall - Factory OEM Windows 7 .

If you want to keep expiring XP on the drive, post back a screenshot of Disk Mgmt so we can better advise you on which partitions to keep. Meanwhile try rebooting while tapping the ESC key to see if HP onboard diagnostics will boot and run from the F9 boot menu.

Here is a screenshot of Windows Update, some error I do not know:



And here is my Disk Management:



I would like to avoid clean install as much as I can because I have half a TB of stuff on that drive. I also need XP because I have software that does not run on 7 or in a VM that well.

Your files should always be backed us since the HD can die at any time. For that amount of files an external HD is best.

You obviously have serious corruption so from the Troubleshooting Steps for Windows 7 I would immediately check for infection, establish a Clean Boot with several reboots, run SFC if necessary from System Recovery Options Command Line: SFC /SCANNOW Run in Command Prompt at Boot.

Report back results. It may be faster to move your data off of C, boot the Win7 installation media for your licensed version, delete System Reserved and C, create a new partition in that space to do a perfect Clean Reinstall - Factory OEM Windows 7 which will reconfigure the Dual boot for Win7. This will clear the boot sector of any corruption. If you do this I would scan XP first for infection from boot disk if necessary: Windows Defender Offline