Sorry for your troubles, and sorry I missed this one.

Have you thought to save a few bucks on an external and just buy another internal ?

Then shut off those useless restore points, and setup Win7 Pro Backup to the new drive.

When Sp1 fubar-ed my wife’s machine I just ran the AVG Rescue CD, went into utilities, then Midnight Commander ( MC ... that disk is Linux based!)
Only needed to copy her e-mail folder and a few others that were created after the last backup to a usb. Reinstalled the last backup, replaced the copied files, and told Win7 to ignore Sp1. DONE!