Now my question is how do I figure out whether issue is related to user profile or user account on that machine?
The simplest method if you suspect profile corruption you can logon with another account that has local administrative rights. after saving off docs, etc. from corrupt/abandoned profiles use Control Panel|Users and Passwords and delete the old profile stores. Then when you next logon a new profile is created from an image in \default user then you can copy your saved data back to new profile.
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