The file or directory is corrupt and unreadable.

My computer is acting very strange. When I turned it on this morning, it came up with a blue screen with white lettering and said it was running a chkdsk. After it was done it booted up windows and my desktop screen with the icons came up just blue. A message came up and said "The file or directory C:/DOCUME~1\(my name)localSettings is corrupt and unreadable. Please run the chkdsk utility." Several times I've had to do a hard reboot. The first couple of times it ran a chkdsk at startup. Sometimes it freezes up after startup when it gets to the desktop screen and won't let me open anything, it just lets me move the mouse. I tried running a chkdsk after startup but it freezes during step 2. I've also lost all my documents and music. I need help desperately. Anybody out there know of a solution?

Run hard drive diagnostics: http://www.tacktech.com/display.cfm?ttid=287 (or http://www.bleepingcomputer.com/forums/index.php?showtopic=28744&hl=hard+drive+diagnostic)
Make sure, you select tool, which is appropriate for the brand of your hard drive.
Depending on the program, it'll create bootable floppy, or bootable CD.
If downloaded file is of .iso type, use ImgBurn: http://www.imgburn.com/ to burn .iso file to a CD (select "Write image file to disc" option), to make the CD bootable.
For Toshiba hard drives, see here: http://sdd.toshiba.com/main.aspx?Path=ServicesSupport/FujitsuDrivesUSandCanada/SoftwareUtilities#diagnostic

Note : If you do not know how to set your computer to boot from CD follow the steps HERE