Also my preferences for Word (spell corrections and keystroke commands etc) are all lost.
Those and the problems with Entourage's database are unrelated. The files in the Main Identity folder are only for Entourage. Not to say though that you may be having problems with the hard drive itself.
I would check that first. Boot to your OS X Installation CD/DVD. Once the Mac has started up to the disk, don't install OS X, but go to the menu bar and launch Disk Utility. Choose you hard drive in Disk Utility's left pane and then click "Repair Disk". If it finds any errors, keeping repeating the repair sequence until it reports no errors. If after more than three attempts you continue to get errors, then you're going to have to use something more capable, such as
Disk Warrior.
From the size of your Entourage database, the mail is there, but not being accessed. Shut down Entourage if you have it running. Make a copy of the Main Identity folder to your desktop (or wherever you prefer) before proceeding to the next part. If trying to repair the database somehow makes things worse, you can also go back to your copy.
Hold down the
Option key and launch Entourage. You will instead get the Database Utility. Select the "Rebuild Database" radio button and click Continue. When that's done, click the "Compact Database" button and click Continue. What this does is eliminate any deleted emails from database. When you delete emails in Entourage, they only get moved to an inaccessible part of the database. But they're still there, taking up space. Compacting the database actually removes that data. If you've never done this before, you could find your Entourage database to be much smaller afterwards.