If you are worried about your files, it might be a good idea to boot to something like an Ubuntu Linux DVD and use the trial option. While running Linux you should be able to copy your files to another location. Considering your situation as you describe it, you may ending up having to reinstall.
Do you trust the software download and do not suspect a virus? Have you tried running a virus checker, even Microsoft has released a bootable version of Microsoft Security Essentials called
System Sweeper. It is a beta, but I have run it without damage to my system. There are probably other bootable programs you might be able to find.
Using a borrowed Install DVD or Repair CD or just having someone make you a Repair CD would normally work. Booting into the WinRE should not get the result you seem to show, but possibly the Install DVD, that does not require a password, would work differently.
You do have an option, if your system is able, to do another Windows 7 install to fix the first. Just make very sure you do not overwrite your original C: partition. If you do that, we can get the boot back to the original install after you remove the problem install. If nothing else, it will allow you to move your files if you have not been able to use Linux.
I suppose there is always the possibility of a hardware failure.....Did you put the laptop battery back in or are you running it without the battery?