When you deleted the .hns files before rerunning UI.exe, did you delete them from ALL partitions or just W7 ?
That is very mixed up.
There's no menu.lst on the XP partition, which is where it should be (the "active" "system") and the two copies of the bootmgr on XP are the wrong way round. The MS version (the big one) and the hns version (the small one) shouldn't ever both be present with those names and sizes.
As I explained before the 375k one comes as bootmgr and gets renamed to bootmgr.hns,
the 185k one comes as grldr and gets renamed to bootmgr.
HnS never creates a bootmgr.hns of 185k in normal use. The only way I can think that happened is if you copied bootmgr after you accidentally deleted the Vista partition and got a copy of grldr which was pretending to be bootmgr, then ran the UI against that incorrect copy of bootmgr which renamed it.
That would account for W7 failing to boot.
The pseudo-bootmgr chains to the renamed real-bootmgr (.hns) which is then supposed to boot W7 normally.
In your case when you select W7, instead of chaining to the real W7 bootmgr, it chains to a second copy of grub, hence the grub error message.
You need to put all those W7 files back in the W7 root from where you copied them.
copy menu.lst into the XP root
reverse the naming on the XP bootmgr and bootmgr.hns so that they're the same way round (size wise) as on W7.
Hopefully that will get HnS booting again.