This is a rather difficult problem since your PC is saying you have a compressed folder/partition or hard drive. Chances are you could try to boot up in Safe Mode by continually hitting f8 but I think you'll end up back with the same error.
If you have another PC with either Windows 7 or XP you could try to put this in as a secondary hard drive, it has been my experience that XP will find a drive that has been corrupted and report there are issues on another drive preventing access and ask if you want to repair it and 9 times out of 10 it works very well allowing the drive to be replaced in the PC it came from, I'm sure a Windows 7 PC will do this as well.
If you don't have another PC perhaps you have a friend who has one that has the same hard drive interface to allow you to do this. I'm sorry to say that if you can't fix it this way the only other solution I can give is to start over from scratch with another hard drive using your XP CD then try to fix it using that, best of luck.
