Windows cannot find c:\windows\system32\notepad.exe

I encountered this erroneous behaviour today doing a test installation (W7x64u sp1). I was able to narrow down the culprit, however ymmv, please check for yourself.

In order to tidy the view in Windows Explorer, i.e. hiding Libraries, Favorites, Home Group, Logged In User, I refered to this procedure with the support of SetAcl to do it per command line. So far this seemed to work fine for me.

Now I noticed that in each newly created user account (no matter whether Administrator or not) Notepad crashes when trying to open or save a file. This does not happen in the default Administrator account used for installation. I don't have an explanation for this, but I assume that Notepad's "last file location" points to these Favorites or Library...space that's hidden (yet not removed) by Vishal's procedure.

This tweak has been postponed after all local accounts had been created on the machine. There might be some sort of Registry value to tell Notepad not to look in any M$ botched location, I don't know.

Have you checked for/cleaned some malware recently? Sometimes malware will hijack the cmd.exe and cleaning the infection can render the cmd.exe missing/useless.

Have you tried Windows 7's in-built System Restore to restore to a point when it did work? If not perhaps you could try that.

Perhaps run Window's System File Checker to see if it can find/replace the missing cmd.exe (if it is indeed missing).