Hi, Sorry to hear of the problems with your brother in law's machine.
As Mac has ruled out a malware infection, it seems pretty clear that there are some damaged system files that need replacing repairing.
Here's a suggested plan of attack to address the issues that you might like to consider.
1 Run chkdsk with the f and the r switch to correct any drive bad area problems and warn him that he may need to run it several times in succession with a reboot in between if errors are found.
2 Run the Windows Protected System file Checker (SFC) and warn the Bro in law that he might need his Windows XP installation disc if damaged/missing files are found. Reboot after the scan has run.
3 Try to run the System Restore facility in safe mode (make sure machine is disconnected from the Internet)
4 If System Restore still won't run, then its worth considering turning the utility off rebooting and then turning it on again(make sure only the system Drive is protected) ......WARNING.... Turning off the System Restore facility will delete all restore points so consider carefully before undertaking this step.
5 Uninstall IE7 and revert to IE6, here's a link to some info on this:
(it is not 100% Vista specific, so you can advise him to follow the Xp instructions only.)
When he has followed the recommended steps, run the Windows Installer Clean up tool, do a disc clean up, a reboot (and a defrag if necessary) and then a fresh download/install of IE7 again (if required)
These steps should do the trick but if these are not sucessful then it looks as though a repair installation of the Operating system might be required, (at the very least) so it would be best to advise him to make sure that his back up/archive/copy of all important files, settings data etc is 100% up to date, correct and reproducible. When locating his XP installation disc it would be wise to gather together all his other application installation discs and driver files, together with product keys including that for Windows itself.
Post back here in this thread if detailed advice is needed on any of the above steps