Linux and Google to the rescue.
Winload.exe in C:\Windows\System32 was corrupted. Luckily Windows makes a copy of it, Winload~1.exe in the same dir. Deleting the previous one and renaming the copy made system FINALLY boot.
But it still leaves the question of why is Win 7 disk booting for SO long… Seems there is still some hardware problem (I am betting on motherboard, it’s a piece of crap anyway).
