Update -
PowerISO worked and I have made a bootable USB with Windows 7 Ultimate and pre-activation. It's 3.63 GB. However, there is only 2.43 GB free on (C:) drive on the HP laptop. I uninstalled as many programs as I dared (3 antivirus programs, Google Chrome/Earth, Open Office, Skype etc.), but can't 'free up' more than 2.96 GB on the drive.
I restored the computer and have everything back now (and only 2.43 GB free on (C:)).
If I try to install Widows 7 Ultimate, what will happen? Will it 'overwrite' Windows 7 Starter and use the GBs currently being taken up by it... or, will it 'crash' and leave me with a totally useless computer?
Also, what will happen to all my current programs if I install Ultimate? Will they automatically be 'transferred'/accessable/usable... or, will they disappear and have to be downloaded & installed again?
There is a 'Racer.exe' program that allows the computer to connect to to my ISP (China Unicom). If I lose it, the computer is useless. I wouldn't know how to get it back, and even if I did, I wouldn't know how to set it up because everything is in Chinese.
What's my next step?
Are you satisfied there are no other fixes to try and find? If you go ahead with an install disk you'll have two options: (1) try using it to "repair" your existing installation, or (2) use it to replace your existing installation.
The repair option, if available, does not replace you system. It attempts to fix your system. It is accessed by booting from the usb stick. When you boot, you should be warned that "Windows" (the one on you USB stick) has detected another installation (the one on your hard disk), and you'll be asked what you want to do, repair or install. You can choose repair. I'm betting it'll report that it is unable to repair owing to, in effect, not being the original disk.
The install option, if you choose it, really should be accompanied by formatting the disk. Normally, an installation will take place alongside whatever you have. They won't merge. You'd end up with two Windows installations on the same hard disk. But with just 2 or so gb free, likely that installation will not go ahead anyway. Something more like 10 is needed, and if you want it to be functional over time then at least 20.
In other words, either Windows setup from the install disk can repair what you have, or you have to format your hard drive, erasing everything, and make a fresh install. (Or find some existing fix for the original installer problem.)
If you are lucky, then everything Racer needs to make it run is located in it's own directory. You could copy the contents of that directory to somewhere safe - another computer or an external hard disk - and copy it back to the new operating system.
This Racer thing, according to the Chinese internet it's your broadband login client. Unless you have a copy of the installation archive for that too, you'd better NOT go ahead with a fresh windows install.