My iMac suddenly reverted to factory defaults

I'm writing this for my elderly father, who has an iMac (model 8.1) that is still running OS X 10.5.8 (Leopard). I know he should upgrade, and I'm going to help him do it as soon as I can help him solve this problem.

He was using the computer yesterday, and editing a document in MS Word when he said the screen suddenly "flashed" and the document he was working on was gone. More than that, all of his applications (Mail, Safari, iTunes, iPhoto) reverted to their initial default screens when he clicked on them (i.e. "Welcome to iTunes. To get started...."). When he opened the Trash icon on the desktop, he found all of his photos and lots of system files inside.

When I had him look in the "Accounts" pane of the System Preferences folder, he's still listed as the "Admin," and his name hasn't changed. I helped him copy his user folder onto a USB thumb drive for safekeeping, along with the "library" folder. One curious thing: there is both a "System" folder and a "Previous Systems" folder listed, even thought the computer has never been reconfigured or re-formatted since he bought it. To my mind, there should only be one "System" folder listed, but maybe the "Previous System" is the factory defaults?

Anyway, any help anybody could offer would be most appreciated. I'm working tomorrow (February 8) all day, but will be able to check in again on Saturday February 9. Thank you in advance for any advice or references to helpful materials.

Jim

Vancouver, BC