they would not load an NT OS onto a FAT32 partition............would they?
A large majority of XP machines, especially older ones ( not counting ones updated to XP, ) I have seen ( and many home machines running W2K ) use FAT32. Don't know why, maybe habit, maybe something to do with backup/restore systems used by manufactures.

My first impression is also the hard drive, although I am puzzled by the two video drivers. ( You didn't say, does this machine have integrated ATI graphics ? Any add-on cards? )

My guess is someone kicked it or something similar while it was running. ( notice the files corrupted would all be in the same area on the disk . ) They knew they F*U* and borrowed a CD to try to fix it themselves but it keeps writing to the same damaged areas. Now they think because they damaged it, it won't be covered under warranty so they bring it to you.

I would be checking for bad sectors, let it run for a day or so and check again. If it was an “ impact wound” you shouldn't see additional bad sectors, and the drive may be usable for a while ( unless the heads were damaged, but that too should show up within a day ).

Good luck!