Error: "Windows is not recognized is an internal external command operable program or batch file. "

Try enclosing the command in quotes. ie; "%systemroot%\system32\restore\rstrui.exe"

"Interesting that I was being asked for XP Professional cd 2. I am runnning XPsp2 Home upgraded from W8SE."

This is interesting. Have you ever attempted a "repair" with an XP-Pro CD?