H: is my disc drive.

Now when I type CD C: and hit enter, it shows C:\WINDOWS\SYSTEM32\DRIVERS and then an H:\> prompt. So if I type DIR I just get what's on the CD. Seems like it won't back out to C. If I type CD WINDOWS it says it cannot find the file or directory specified.

That's weird.
Try any the following:

CD C:\
CHDIR C:
CHDIR C:\

One of those HAS to work... They're all acceptable commands in the Windows console environment. Maybe including the backslash might make a difference, but honestly I know I've used CD C: with success.

We just need to get you into the drivers directory of your C drive so you can delete the file and copy the new file into it from the H drive.

If none of those work, we'll see if we can just do the full operation in two commands from where you're currently sitting.
I just wanted you to actually get into the drivers directory to see how many instances of the file there were... because if it's a virus that copied it or renamed it, we might not catch it without seeing the directory and its files. But that's just operating from a theory.

each one returns the H:\> prompt, the only difference being that CHDIR C: displayed C:\ before giving me the H:\> prompt again.

Ok just go ahead with this and see if it lets you do it:

DEL C:\WINDOWS\SYSTEM32\DRIVERS\volsnap.sys

COPY H:\I386\volsnap.sys C:\WINDOWS\SYSTEM32\DRIVERS\volsnap.sys

No errors with the first line, only it returned the H:\> prompt.

Second line returned the error "the system cannot find the file specified." :(

Ok. Your corrupt volsnap.sys is deleted and gone. Part 1 done. Smiley face!
Now, we just need to make sure my path is right for copying the file. On my XP pro CD, it's as I listed... let's just check that your CD has it in the same place.

Do:

DIR (verify that you're in the CD.. locate I386)
CD I386
DIR (look through the long list of files and see if you can locate volsnap.sys)

Let me know if you find it in there.

It's listed as VOLSNAP.SY_ and there's also a VOLSNAP.IN_

Not sure what all the underscores mean, but all files have an underscore as the 3rd character of the file extensions. It may not mean anything.

Ahhh.. Ok... Yea that's why. I don't know why it's an underscore, but yea that's part of the file name. I think the OS changes it to .sys during the installation. Don't worry about the INI file.

Do:

COPY H:\I386\volsnap.sy_ C:\WINDOWS\SYSTEM32\DRIVERS\volsnap.sys

If that goes through, type EXIT and recovery console should close and your computer should start rebooting. Hurry up and kick out the CD and see if windows starts normally. If not, let me know.
As far as I know, the file needs to be saved with the .sys extension... if you still can't boot, we'll try copying it to your drivers folder as a .sy_ but I really doubt that's a valid file extension. The .sys should work fine. As far as the .ini file, I don't have one in my system32\drivers folder so it's obviously not needed. Probably something for installation.

Ok the line went through and it said 1 file copied. So I typed EXIT, hit enter, and quickly ejected the CD. Got the Dell startup screen, then the screen went blank...and nothing.