Bad partition? Would this be the primary partition with Win98 and all his data on it? How did the partition go south? Virus? Defective drive? Anyway, I don't think you should be surprised to see lots of system files that are trashed. Even if the drive passes diagnostic tests now, you are likely to keep finding file after file missing or corrupted.

Just wipe it and start clean. If this guy didn't have the sense to back up critical data, you may need to pull the drive and run a data recovery program like GetDataBack on it, but I think you are going to find that trying to fix the Windows installation one file at a time is a losing battle. If he has the hardware to run it, I would certainly install XP. No doubt you can lay hands on a W98, ME, whatever CD when needed during the installation.