If the Classic boots from ROM, I find it hard to believe it is a hardware issue that is causing it not to load from the hard drive. However, it is also hard to imagine a hard drive that starts the bootup procedure and actually loads extensions, but no System folder is present. Change the HD window to list view in order to see the itemized contents of the drive. It has to have a System folder. Sometimes, the icons get stretched off the window (in which case there should be scroll bars at the top and/or bottom). That memory manager error sounds more like a bad software call to me made by an extension that is missing resources or loading improperly.
As for available disks, you can download them directly from Apple, or you can copy the contents of the Classic's ROM disk onto it.