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his block count remains "stuck" at 1698.
He was generating invalid blocks at difficulty 1.0.  He must have a corrupted entry in his blk0001.dat or blkindex.dat file.  He just needs to delete blk*.dat and let it redownload.

The safety lockdown detected the problem and was displaying "WARNING: Displayed transactions may not be correct!" because it saw a longer chain existed that it was unable to accept.  The safety lockdown cannot stop generation or it would create an attack possibility.

The Bitcoin client really shouldn't allow coin generation until you have all of the blocks up to the last block checkpoint.
Good idea, I made a change to make sure it won't generate before checkpoint block 74000.
OK, if it really won't get past block 1698 on redownload, then we're in stranger territory.

Yes, possibly he has antivirus software or even a router or filewall that is pattern matching a sequence of bytes and censoring it.

It would be instructive to get knightmb's blk*.dat and see if that gets him past that point.