Thank you for posting your experience. I have been trying to restore a Toshiba Satellite A105, which was in the same loop you described. I stopped the loop, started from a different Win XP Pro disc, deleted all partitions, and the restore process started working properly.
It looked like there was a service partition (241MB), and the system couldn't boot to it properly.
Thank you so much for posting your experience. I have been searching Google for over an hour trying to sort this out.
You have saved my butt.