boy, you've got quite a mess on your hands
Since you got the XP installation disk from another computer that already used it, in which the license key has already been used, the copy of XP that you installed is not legal.
Even if you can get your files off the hard drive, you won't be able to continue using Windows XP Home edition........
AT this point I would suggest taking the hard drive out of your computer and adding it as a slave drive to another computer.......once the drive is added, you can probably get the files that you need, off the drive....
AS far as putting another operating system back on your computer, I would first find a new economical hard drive, since the one you currently have is failing, and then call Microsoft, give them the License Key for the Version of XP Professional, and see if they will send you another copy of the XP professional CD