It could be that your system was having trouble reading from the CD when booting the Legacy environment. You might want to try creating a new Recovery CD using a slower burn speed (if you are using burning software that allows you to change this).
Also, if the Vista-based environment works, you can always use that for the restore. It does not matter that you are running an XP system, you can still use the Vista environment. It should not have any trouble restoring your Windows encrypted files, but let us know if you encounter any problems.
Kevin