If it helps confirm, my incident started from WSUS W7 SP1 auto install and user restart.
I was able to use "fix" by:
"rename and replace the DEFAULT, SYSTEM, SOFTWARE, SAM, and SECURITY files in "system32\config" folder throught the recovery console command prompt, I got the OS to boot up." quote from another user's post
System is now unstable and keeps trying to install SP1 and fails.
Side note: Turned off System Restore in domain via GP long ago, after too many problems with virus hiding in them. This is rare case where restore point would be nice, but apparently would not be available -- as posted above.
Hoping for fix from MS.