First, /sbin/init is not a shell script.
[~]# file /sbin/init
/sbin/init: ELF 32-bit LSB executable, Intel 80386, version 1 (SYSV), for GNU/Linux 2.2.5, dynamically linked (uses shared libs), stripped
The kernel is the very most base part of the OS. For the most part, all the kernel does is move data around. It handles talking to the hardware, and making sure programs run (that is, as a scheduler). During normal bootup the bootloader loads the kernel, which then takes off and probes your hardware, finds the root filesystem, and kicks off init. Init handles bringing up the rest of the system to whatever runlevel is specified in inittab.
The kernel on Win32 is not all of %system32%. It's %system32%\kernel.exe (and usually some DLLs, which are roughly equal to LKMs in the Linux world).