That message is rather misleading. It happens because the boot.ini file
that tells the boot where to look for 'Windows' is damaged, so it is
looking for files in the wrong place - hal.dll just happens to be the
first one it looks for.

Set the BIOS to boot CD before Hard Disk. Boot the XP CD and, instead
of Setup, take the immediate R for Repair. Assume any password
requested is blank, and TAB over.

Use
Attrib -H -R -S C:\boot,ini
DEL C:\boot.ini
to delete the bad one
BootCfg /Rebuild

to search for Windows installations and make a new one