Can't get to desktop, build 7601 error

My husband's netbook is having issues with Windows Update. It started out okay, but got stuck at 30%. We tried rebooting, but it didn't help. Currently, he can get to the login screen but then the computer just says 'please wait' and sits on a black screen. I've tried using system restore, but for some reason it was turned off and it has no former state to go back to. I've tried chkdsk but that didn't help. I've tried startup repair but it said it didn't find anything wrong. Eventually, I tried letting the computer sit for a while with the black screen to see what would happen and a message popped up that said that the copy of windows wasn't genuine. I know this isn't true since it came on the actual computer and we ordered the computer from Amazon.com.

To answer the first question, the netbook is a Dell Inspiron Duo and yes I can get into safe mode, but not the normal desktop. I'm currently in Safe Mode with Networking.

Code:

Diagnostic Report (1.9.0027.0):
-----------------------------------------
Windows Validation Data-->

Validation Code: 0
Cached Online Validation Code: N/A, hr = 0x8007043c
Windows Product Key: *****-*****-QCPVQ-KHRB8-RMV82
Windows Product Key Hash: +Rj3N34NLM2JqoBO/OzgzTZXgbY=
Windows Product ID: 00359-OEM-8992687-00095
Windows Product ID Type: 2
Windows License Type: OEM SLP
Windows OS version: 6.1.7601.2.00010300.1.0.003
ID: {428098F5-99A0-476D-825C-3DB1831A3BDC}(1)
Is Admin: Yes
TestCab: 0x0
LegitcheckControl ActiveX: N/A, hr = 0x80070002
Signed By: N/A, hr = 0x80070002
Product Name: Windows 7 Home Premium
Architecture: 0x00000000
Build lab: 7601.win7sp1_gdr.120830-0333
TTS Error: 
Validation Diagnostic: 
Resolution Status: N/A

Vista WgaER Data-->
ThreatID(s): N/A, hr = 0x80070002
Version: N/A, hr = 0x80070002

Windows XP Notifications Data-->
Cached Result: N/A, hr = 0x80070002
File Exists: No
Version: N/A, hr = 0x80070002
WgaTray.exe Signed By: N/A, hr = 0x80070002
WgaLogon.dll Signed By: N/A, hr = 0x80070002

OGA Notifications Data-->
Cached Result: N/A, hr = 0x80070002
Version: N/A, hr = 0x80070002
OGAExec.exe Signed By: N/A, hr = 0x80070002
OGAAddin.dll Signed By: N/A, hr = 0x80070002

OGA Data-->
Office Status: 100 Genuine
Microsoft Office Enterprise 2007 - 100 Genuine
OGA Version: N/A, 0x80070002
Signed By: N/A, hr = 0x80070002
Office Diagnostics: 025D1FF3-364-80041010_025D1FF3-229-80041010_025D1FF3-230-1_025D1FF3-517-80040154_025D1FF3-237-80040154_025D1FF3-238-2_025D1FF3-244-80070002_025D1FF3-258-3_E2AD56EA-765-d003_E2AD56EA-766-0_E2AD56EA-134-80004005

Browser Data-->
Proxy settings: N/A
User Agent: Mozilla/4.0 (compatible; MSIE 8.0; Win32)
Default Browser: C:\Program Files\Google\Chrome\Application\chrome.exe
Download signed ActiveX controls: Prompt
Download unsigned ActiveX controls: Disabled
Run ActiveX controls and plug-ins: Allowed
Initialize and script ActiveX controls not marked as safe: Disabled
Allow scripting of Internet Explorer Webbrowser control: Disabled
Active scripting: Allowed
Script ActiveX controls marked as safe for scripting: Allowed

File Scan Data-->

Other data-->
Office Details: <GenuineResults><MachineData><UGUID>{428098F5-99A0-476D-825C-3DB1831A3BDC}</UGUID><Version>1.9.0027.0</Version><OS>6.1.7601.2.00010300.1.0.003</OS><Architecture>x32</Architecture><PKey>*****-*****-*****-*****-RMV82</PKey><PID>00359-OEM-8992687-00095</PID><PIDType>2</PIDType><SID>S-1-5-21-1783683003-4063375846-1974488788</SID><SYSTEM><Manufacturer>Dell Inc.</Manufacturer><Model>Inspiron 1090</Model></SYSTEM><BIOS><Manufacturer>Dell Inc.</Manufacturer><Version>A02</Version><SMBIOSVersion major="2" minor="6"/><Date>20101112000000.000000+000</Date></BIOS><HWID>59E93A07018400F4</HWID><UserLCID>0409</UserLCID><SystemLCID>0409</SystemLCID><TimeZone>Eastern Standard Time(GMT-05:00)</TimeZone><iJoin>0</iJoin><SBID><stat>3</stat><msppid></msppid><name></name><model></model></SBID><OEM><OEMID>DELL  </OEMID><OEMTableID>CL09   </OEMTableID></OEM><GANotification/></MachineData><Software><Office><Result>100</Result><Products><Product GUID="{90120000-0030-0000-0000-0000000FF1CE}"><LegitResult>100</LegitResult><Name>Microsoft Office Enterprise 2007</Name><Ver>12</Ver><Val>7480B9502DF0D86</Val><Hash>oYWOW5ayFE3pZ+jvTpuXYsY64JE=</Hash><Pid>89388-707-8722531-65534</Pid><PidType>14</PidType></Product></Products><Applications><App Id="15" Version="12" Result="100"/><App Id="16" Version="12" Result="100"/><App Id="18" Version="12" Result="100"/><App Id="19" Version="12" Result="100"/><App Id="1A" Version="12" Result="100"/><App Id="1B" Version="12" Result="100"/><App Id="44" Version="12" Result="100"/><App Id="A1" Version="12" Result="100"/><App Id="BA" Version="12" Result="100"/></Applications></Office></Software></GenuineResults>  

Spsys.log Content: 0x80070002

Licensing Data-->
On a computer running Microsoft Windows non-core edition, run 'slui.exe 0x2a 0x8007043C' to display the error text.
Error: 0x8007043C 

Windows Activation Technologies-->
HrOffline: 0x00000000
HrOnline: 0x00000000
HealthStatus: 0x0000000000000000
Event Time Stamp: 10:29:2012 15:49
ActiveX: Registered, Version: 7.1.7600.16395
Admin Service: Not Registered - 0x8007043c
HealthStatus Bitmask Output:


HWID Data-->
HWID Hash Current: MAAAAAIAAQABAAIAAQAAAAAAAgABAAEAJJRQBBU/dxYCe0wXaOmKL3f2IqwoRuSV

OEM Activation 1.0 Data-->
N/A

OEM Activation 2.0 Data-->
BIOS valid for OA 2.0: yes
Windows marker version: 0x20001
OEMID and OEMTableID Consistent: yes
BIOS Information: 
  ACPI Table Name	OEMID Value	OEMTableID Value
  APIC			DELL  		CL09   
  FACP			DELL  		CL09   
  HPET			DELL  		CL09   
  BOOT			DELL  		CL09   
  MCFG			DELL  		CL09   
  WDAT			DELL  		CL09   
  SLIC			DELL  		CL09   
  OSFR			DELL  		CL09   
  SSDT			PmRef		CpuPm
  SSDT			PmRef		CpuPm
  SSDT			PmRef		CpuPm