WinXP activation error / loop on logon screen

I have been screwing with a laptop all day now. My custmer deleted files, not sure which ones of course, and the system wouldn't boot.

Well it will boot to logon screen, when I click on a user it says winxp is not activated and asks if I want to activate it. I click yes, it saves settings and logs off back to the logon screen. Even with the admin user in safe mode.

I tried a repair install of xp and ran the chkdsk in recovery console. Even tried ms fix: http://support.microsoft.com/kb/312295/en-us

None of this has worked. I may try to copy over the user accounts and then try to reinstall xp.

Any thoughts on how to get through this activation loop poop?