Ideas:
1. Is the Win2k partition NTFS or FAT? If FAT, you can boot to Win98 and back up the data.
2. Most of the times I have gotten stuck in a Win2k loop it has boiled down to a bad stick of RAM. Win98 is a more primitive OS, so it is less sensitive to this. Try replacing your RAM.
3. If Partition is FAT, check your BOOT.INI to be sure the correct disk is referenced in the line,
default=multi(0)disk(0)rdisk(0)partition(1)\WINNT
4. If all else fails, browse to winternals.com. ERD is _golden_ - has saved my *** multiple times. You rarely need a tool like ERD, but when you do, nothing else will do. It is well worth the price, and I love their licensing model! PowerQuest licenses "per machine," but Winternals licenses "per user", so if you're consulting it's the one tool to keep with you.
5. After several years of fighting for days with various configuration issues, I have decided that if I can't fix something in two hours, then I have made a down-payment on a new computer.In a case like this, after the 3rd reboot I would do what I had to retrieve the user's data, then reformat the partition/drive. (does it have to be dual-boot?)
6. If the partition is NTFS and you can't or don't want to get Winternals/ERD right now, try slaving the drive into a different Win2k system to retrieve the data before you reformat the partition.