It would appear that system restore is totally fubared on your PC, this is
often a consequence of having had a product from Symantec installed on the
system at some time.  The solution to the problem requires you to clear
down the entire folder structure from DOS.

Delete the folder as follows:
a) Boot to DOS using a floppy.  Do NOT choose "Minimal Boot" from the menu
when booting from a floppy but rather choose "Start computer with (or
without) CD-ROM support" otherwise the ATTRIB command will not be
available.
b) At the DOS A:\> prompt, type:

ATTRIB    -H   -S    -R    C:\_RESTORE
and then
REN    C:\_RESTORE    OLDREST

c) Remove the floppy
d) Reboot your PC
e) Delete the folder C:\OLDREST
f) Check that an automatic system restore checkpoint was created.
g) Finally adjust the space allocated to the restore folder: System |
Performance | File System | Hard Disk and adjust the restore slider to
your preferred setting.  A  figure of 200MB is normally more than adequate
for day to day use allowing perhaps a week of checkpoints to be available
although increasing this to perhaps 400MB for a few days during periods of
large installs such Microsoft Office is advisable.

Finally you may want to give system restore the once over by carrying out
the following quick test.
a) Create a shortcut on your desktop to a file.
b) Create a manual checkpoint
c) Delete the shortcut
d) Restore you PC to the checkpoint you created.
Was the shortcut restored?  Did you see any error messages?