Theory 1.
have you ever used program to protect your computer state?(DeepFreeze, Norton Ghost or such)
Maybe you got it on somehow and it made your computer back to the first time you install the program and lose your data.

Theory 2.
Your HDD got short electricity and made its particle to change (than you're lucky because you still can use it).

Theory 3.
Because of virus, I've once my .doc and .xls document changed into .txt file with blank text in it(I've given up and wanted to reinstalled the OS). luckily I've got my friend who came up with Norton Antivirus and recover my data back(.txt back into .doc and .xls)

Theory 4.
Human Error - You said your system folder is empty, then it is possible you 'unpurposely'/'unconciusly' delete the system folder.(maybe wrong icon which you wanted to delete)

but all of them are just theory ^^

I suggest that you utilize the services of an antivirus in the future, but prevent it from running in the background.

That's how I do it, anyway.

You can always undo a System Restore and see if that brings files back, but it might be malware that's killing or has killed your files. You could try Undelete to see if you can restore your deleted files, but if you've been writing to your hard drive recently, you may have dropped the ax unintentionally on some files, which cannot be restored once the computer writes to the portion of the hard drive that contains those "deleted" files.

Save what you can onto an external media (HD, DVD, CD, tape), try to recover your stuff, and SCAN THE BACKUP for any potential malware you may have carried over with you. Kill any perpetrators, stick in your Windows XP/2000/Vista CD/DVD, then commence the reformat.

If you don't know how to reformat:

1.) Stick the CD in and restart the computer.
2.) Press any key to boot from the CD. (Of course, do this when you're prompted to.)
3.) Attempt to set up Windows again on your machine following the onscreen prompts. When asked if you want to repair the current Windows installation, say no and continue with normal setup.
4.) Create your partitions, choose a partition to install to, and follow the onscreen prompts.