FIXED!! thanks so much for this guide.
So, I had the preview software and green screen of death for an hour followed by error message screen.
read all your posts above. thanks to all!
what I did was connect the hard drive to the laptop and format each partition (lost all my games but whatever can redownlaod) BUT for the system update partition I followed the advice above and copied the A and B folder and pasted them back after the format.
So then I put the drive back in and used the usb factory restore method and boom!
The reason I went through all this is that the usb diagnostic tool factory restore was not working AT ALL even after much help from Microsoft support. All they could say after exhausting all options was return it and get it fixed/replaced but I don't live in the US so would have been a pain.