Toshiba Laptop XP problem

I have a Toshiba Portege M400 that I bought second hand loaded with XP Tablet PC Edition. So far so good until my relatives decided to load it up with spyware and somehow managed to kill the DVD Rom. They even managed to overwrite the password and forget it. Thank God for creating second admin acct!  

So at this point I have a PC that crashes during normal boot with a 0x0000007F error (0x00000000, 0x80042000,0x00000000, 0x00000000) when starting to load the screen.

I tested the memory by removing each stick and it runs fine.

I can go in safe mode and I did spyware sweep which cleaned it up but still hangs during the boot up.

I wonder if the jammed DVD Rom could be the issue? There's no CD stuck in it and it shows as operational under the OS but it can't open or close. Would I need to do anything on it, like disconnect the power from the mobo or it should be ok that way?

I have a spare USB DVD burner that won't boot Windows XP install CDs on this PC. I get the following:
PXE-E61 - Media Test Failure, check cable
PXE-MOF: Exiting Intel Boot Agent.
At which point it loads the OS from the HDD and blue screens again.

I'd appreciate any suggestions at this point as I am pretty much against the wall with ideas.

Maybe a USB flash drive OS install? or could there be a way for me still to repair the OS? As luck would have it I didn't get any OS disks for this PC, I tried to boot from my other PCs XP install disc.