MacBook Air (1st gen) running really slow, basic apps crash and no internet
Solution 1:
Have you run the Apple Hardware Test that came with the MacBook Air?
To use Apple Hardware Test on your MacBook Air:
Disconnect all external devices from your computer except the power adapter.
Restart your MacBook Air while holding down the "D" key.
When the Apple Hardware Test chooser screen appears, select the language for your location.
Press the Return key or click the right arrow button.
When the Apple Hardware Test main screen appears (after about 45 seconds), follow the onscreen instructions.
If Apple Hardware Test detects an issue, it displays an error code. Make a note of the error code before pursuing support options. If Apple Hardware Test doesn't detect a hardware issue, the issue may be software related.
If AHT found no issues, run a memory test. Download memtest86+ and burn that to a CD, and boot the MacBook Air from the CD. I have personally had RAM issues which AHT didn't find but memtest did.
EDIT: Sorry, I only just not noticed that you said you're unable to run AHT, presumably because you don't have an external optical drive. I'd recommend taking the MacBook Air in to an Apple store. Or by using a USB Ethernet Adapter you could probably get it to boot AHT from the network.
EDIT2: Have you tried booting from a USB drive? You could use another Mac to install a fresh copy of OS X to a US disk and see if the Air can boot that. or, you might be able to copy the Mac OS X Install DVD to a USB disk and try to run AHT off there...
Ultimately, a visit to the Apple Store is probably your best bet :-(
Solution 2:
Turned out to be a HDD fault. Apple Store is replacing HDD as we speak.