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Regardless if this is related or not, you should keep your machine at least up to the latest service pack unless you are using 3rd party software which specifically states that it is not supported on a service pack higher than 2.
I think I'd update to SP3 before doing anything else. Also, is this an internet-facing machine?
yes DR watson is a common source of problems so that may fix the issue.
It should really be called Dr Lecter ! still hope you get it sorted
No this system is a stand alone machine.
Well like I said, start with service pack 3 and then roll forward from there. Chances are that you wont be able to recover from the corruption.