It sounds as though your system is set to boot directly into X, yes? I think X not loading is just a side effect of a problem happening earlier in the boot process. Although I've never seen that error, it looks like some has gotten corrupted in your /etc/inittab file and my guess is that the incrementing number are referring to runlevels (although I'd expect them to be 1-6 as opposed to 1-7).
The sh-2.05# prompt means you're in single-user mode, so your filesystems may be unmounted and the system won't be fully functional, but try typing
and see if the contents of the file are displayed. Copy them down and post them here. Also:
-Was anything changed the last time you used the system?
were you doing the last time the system was booted?