System Recovery's primary job is to repair the W7 OS but it also likely loads default drivers and services.
I'm spit-balling here because I don't know for sure but a few ideas:
1. I doubt it but, it is a good idea to rule out a virus issue: Download TDSSKiller and RKill from our
Freeware DB. If you do not have an anti-virus then download, install, and allow to update Malwarebytes Anti-Malware (MBAM). Then reboot your system into safe mode without networking (Reboot and, when it says "Starting Windows," Press F8; If you get a message asking continue in safe mode or perform a system restore, choose continue in safe mode). Now run TDSSKiller and after that run RKill and after that run a full virus scan. The first two will take maybe 5 minutes each but a full virus scan can take anywhere from 30 minutes to several hours depending on your hard drive size and number of files.
TDSSKiller is designed specifically to look for rootkits. RKill is designed to stop the stealthing programs that hide/protect/regenerate some nasty viruses. Running these first will help ensure your A/V has the absolute best chance of cleaning up infected files.
2. Log on normally and start an administrative command prompt. Run "sfc /scannow" and it should repair any damaged OS files. See if the issue persists. This is mainly what your system restore should be doing so I doubt it will help but it's easy enough to try it.
3. Have you stopped and/or deleted any Services or used a "speed up your PC" program that might have? It is possible a service is needed that you no longer have available.
4. But my best guess is registry corruption. It may be limited to your userid. Try creating a brand new account and then log on with that ID. If you do not get the error logged on with the new account then your user settings (registry/services) is corrupt or set improperly. If it doesn't work under the new ID either then it could still be the registry but the damage is in a common area. If the new ID works then you can copy your data over and start using that. If it doesn't work or that isn't acceptable then you would need to completely reinstall, which means backing up all your data/settings, reinstalling W7, restoring your data, and then reinstalling all your programs.