|SO many issues here I don't know where to begin.|
First of all. If you have overwritten the old WinXP installation then the chances of recovering person files is slim. Sorry to say your friend may have meant well but didn't do the right thing.
Have you given up on recovery? If not, then you need to stop installing stuff.
From MY Googling I found that error may indicate a failing hard drive.
HP seems to have a hardware diagnostic that can be reached by hitting F10 at start up. I suggest you start there to see if you have a hardware issue.
If you just want to get it running again I believe the same F10 will give you an option to restore to factory state. That should install everything that originally came with the HP.
The reason you are showing only 127GB is because your friend's WinXP CD is the original version, which is NOT 48 bit LBA compliant. That means it can't handle partitions/drives larger than 127GB. That is not a hardware problem if the hard drive now installed in the HP is the same one that came from the factory.