VM image inaccessible in Virtual Box

Question

I have Virtual Box installed on base OS RHEL 5.5. I am using Windows 7 as a VM image on Virtual Box. While transferring a folder of 600MB on Windows I got a Virtual Box error saying Memory limit outside limit and then it hanged. I restarted my Base OS(RHEL 5.5), when i tried to launch the Windows 7 image I'm getting the following error message

   Start tag expected, '<' not found.
   Location: '/opt/VirtualBox/VMs/Machines/Windows 7/Windows 7.xml', 
   line 1 (0), column 1.
   /home/vbox/vbox-3.2.12/src/VBox/Main/MachineImpl.cpp[679] (nsresultMachine::registeredInit()).
   Result Code: 
   NS_ERROR_FAILURE (0x80004005)
   Component: 
   VirtualBox
   Interface: 
   IVirtualBox {3f36e024-7fed-4f20-a02c-9158a82b44e6}

Please help me debug this error as deleting the VM image and installing a new one is not an option as I'll lose all my data.

EDIT 1:

I tried creating a new VM using existing disk files. The error i'm getting is..

The disk space is ..