MacBook shows circle with line through on boot even on Safe Mode and kernel panics
You know the answer already.

For some reason your booth sector got scrambled.

You could try to the reset EFI to see if it helps.


  An EFI (extensible firmware interface) is a set of instructions stored
  in computer memory that act as an interface between computer
  components and the operating system during startup. If you are having
  startup problems or your computer components do not work properly, you
  may be able to solve the problem by resetting the EFI to its default
  settings.


Read more : http://www.ehow.com/how_8007618_reset-efi-chip.html

Reinstalling the OS with CMD-R will only fix the system files and not your files. It depends if you have the Restore on your hard drive or you need to use the Internet recovery.