I tried to boot with Knoppix 5.1.1 Live CD. It was a breezy success. It showed all the partitions of hard disks on my desktop. When I tried to mount the corrupted partition (C drive in Windows), it asked me to Force mount it since the partition in question had some problem. I said yes, and voila! It worked.
I changed the attribute of other mounted harddisks NTFS partition to read-write mode (right click on partition in question and select read write attribute) and copied all my data to other, safe partition. Knoppix 5.1.1 had built in NTFS partition READ-WRITE capabilities. You can also use USB Key or Burn a CD / DVD to backup data.
After backing up my data, I reformatted the C drive and finally I was able to clean reinstall WindowsXP again.
You can download latest Knoppix Live CD / DVD image for free from HERE