FWIW -
1) Compaq's hidden 'restore' partition only could do one thing the last time I used it: flush the machine to a as-delivered pristine XP install. All your data goes away.
I used this before donating a Compaq to a school. I assume 'restore from hidden partition' is intended for just that, to flush a machine before re-assigning it to a different user, or before retiring it. It's not data recovery! And it sounds like your Compaq is from the era I'm talking about. Maybe the newer ones added a 'restore and save your data' option.
2) My wife's Vista/Fry's laptop just failed same as your XP Compaq. Boot is a flash of the power-on light, a momentary grunt from the HD then one from the CD ... then nothing.
About one time in ten I can get into the bios, where I set boot order as CD first HD second, everything else Default. This didn't help. Boot from the provided 'system restore' CD has exactly the same results. And the CD only contains a 'flush everything' restore option.
And occasionally I can get the boot choices screen, then boot into Safe Mode. I restored the earliest System Restore Point which was just before a major Microsoft automated maintenance download; maybe that included IE8.
While it will occasionally show the boot choices screen then accept non-network Safe Mode, normal Windows boot continues to fail 100%. Safe Mode will continue running as long as you like, so it doesn't seem to be an overheating or damaged HD issue.
I suspect the Automated Update from that background Microsoft weekly update download is what killed it.
Is anyone else experiencing what Soundguy and I encountered after installing Microsoft's latest and finest?