It could be a fault with the drive itself - in which case a replacement drive will be needed.
Before you do that though, try going into Device Manager and removing your CD drive. Then reboot, Windows should detect the drive and reinstall the drivers for it.
Right-click on My Computer - Properties - Hardware - Device Manager
Do you have dual boot with both 32 bit and 64 bit versions of XP installed?
I've been doing some searching and haven't found anything helpful. It would appear that you have updated 64 bit to the correct version of DirectX, but I can't find any info on the 32 bit mode or the 32 bit system files that are still at the old version.
However, if you aren't actually getting any problems, then it might be best to just leave things as they are and not worry about what dxdiag shows up in 32 bit mode.
I wasn't able to come with an answer regarding sr.sys.
One last thing to check - right-click on My Computer, Properties, System Restore.
Make sure you don't have system restore disabled on the C drive. Also - check the settings for SR, have you allowed Windows enough space for SR?
Is your hard drive getting full? If there's not enough disk space, SR cannot work.
Do you need to have a disk cleanup? The simplest temp file tool is ATF cleaner, it will remove files safely and clear disk space for you. Doesn't need to be installed. http://www.snapfiles.com/get/atfcleaner.html
Do you have another monitor and lead that you could try? Maybe borrow one?
It could be your graphics card, or your monitor (or lead), but it would be helpful to prove it with different hardware. I don't think we can diagnose a hardware problem so easily just from the symptoms.
Looks like you've tried everything on the software side.
The comments facility on the main site isn't the same as the forum. I'm not sure if the administrator/owner of the site 'approves' comments first - my main role is in administration/moderation of the forum.
So, the delay in a comment appearing could be down to owner censorship (good practice) or just the coding behind the site. Maybe he'll be along to enlighten us.