Less elaborative verbiage and more succinct detail would be good for starters; the exact circumstances of your situation get a bit lost in your telling of the tale. :mrgreen:
Seriously though:
1. Please clarify why exactly, when the problematic hard drive was installed in the other computer as a slave, you couldn't access the data you wanted to rescue? If you were denied permission to a folder, you can gain access to it by going in to the advanced security settings of the folder's Properties and taking ownership of the folder.
If you had a different problem, please explain.
2. As for the original error, the windows\system32\config\system file is a component (called a "Hive") of the Registry, and yours appears to have become corrupted. The hives are unique to the system on which Windows was installed, so you cannot just replace them with copies from another computer.
* Booting into the "Last known good configuration" might do the trick, although it often doesn't. It is the easiest fix though, so it's worth trying.
To boot into that configuration, start tapping the F8 key right after your computer starts up (that is- well before you see the Windows startup graphic/logo). This should bring up the boot options menu, where you can choose the "Last known good" menu item.
* There are a couple of other ways to fix the corruption, which are discussed in these links:
http://www.kellys-korner-xp.com/xp_sys32.htm
http://support.microsoft.com/kb/307545/en-us