Reloading OS problem, error 0x80070017

The niece brought her Acer Aspire 3680-2682 laptop to me it would not boot to windows, after POST getting an error message:

Windows could not start because the following file is missing or corrupt:

<windows root>\system32\hal.dll
Please reinstall a copy of the above file

but before that, when I power on the unit, it says:
Please select the OS to start:
Microsoft Windows XP Professional
Microsoft Windows XP Home Edition

Strange thing with the above is that this is supposed to be a Vista unit so why are those OS showing up? Anyway when I try to reload the OS, I am getting this error:

Installation was cancelled
Windows cannot install required files. The file may be corrupt or missing. Make sure all files required for installation are available and restart the installation. Error code: 0x80070017

Anyway I reinstalled XP and it works fine but when I attempt to reload the vista home basic which originally came with this laptop, I am getting the same error;

Installation was cancelled
Windows cannot install required files. The file may be corrupt or missing. Make sure all files required for installation are available and restart the installation. Error code: 0x80070017

So how can I reload the vista OS now please?