What I'd do is see if you can boot of an XP disc and get to the recovery console. Run /chkdsk on C: from there. I forget the parameters, but you can type /chkdsk \? (I think that's the right context, but the slashes might be wrong---guess who doesn't do much console work? )

The other thing I'd do is after you get it restored, seriously consider converting the filesystem to NTFS. It's a bit more robust than FAT32 and is worth the conversion.