How to reinstall Windows 7 using in-place upgrade when the system is unbootable?

I've experienced some freaky data loss in Windows 7 & tried to recover the files. (More on that in the original question.) The work data is safe but I also decided to copy everything missing back into Windows directory & rebooted thinking that the recovery mode would be a better option for rolling back to a restore point. Shockingly, the only options System Restore gave me were from November 2010 (2.5 years old) despite many updates & installs since. I thought that only the dates were corrupted but when I scanned for software to be affected by the roll-back, the list included everything installed since then. On top of that, something got screwed up in the OS and I can't boot even into Safe Mode - the system BSODs supposedly on compbatt.sys (which I've already tried to copy from the original distro).

Since I have many settings not saved, I don't want to perform a clean install of the OS. The problem is that the install disc keeps on telling me that upgrade can be performed only from the fully-booted system and not from the recovery mode. This is very annoying because all previous versions of Windows could be upgraded from DOS or PE.

Thus, the question is: how can I fix my OS without formatting the drive if it's not bootable & System Restore is broken?

Copy the data to another drive (for backup), then install a clean copy without formatting. This will be the only way. The Upgrade function is only available for booting systems for a reason