I have the same error, but I think it may be hardware related.

I installed Hardy Alpha. Everything was fine. Then, one day, the
computer had a great fall. After that, it would give the "Internal
Error, failed to initialize HAL!" error. But it happens only with the
newer kernels. 2.6.24-12 works perfectly.

It also gives the error when booting from the CD.

sudo /etc/init.d/dbus restart gives output identical to yours.

-- 
Internal Error, failed to initialize HAL!
https://bugs.launchpad.net/bugs/219500
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