1. Is the "setup" file is still good to use if my sql server is patched to SP2 after installation?

If this is one of the system database files that are in other locations on your server... yes. it will upgrade it self to SP2 when you start it. You can use this to get SQL Server up long enough to restore master from your last good backup.

2. What else I can try to recover system files if I have the backup files?

(last ditch effort short of reinstall from scratch) Please only do this if you're familiar with the process or at least all of the moving pieces.

If you have a server where master/msdb/model/tempdb are all setup in the same location as your server you're having an issue with (if you only install with defaults and all) copy your existing files into a folder marked old, place these new files where the old ones were... then start up SQL server, normally around here. 'C:\Program Files\Microsoft SQL Server\MSSQL_10_50\MSSQL\Binn'

in command line run ''C:\Program Files\Microsoft SQL Server\MSSQL_10_50\MSSQL\Binn\sqlservr -m' If that's where your sqlservr.exe is located (adjust accordingly)

for a named instance use

''C:\Program Files\Microsoft SQL Server\MSSQL_10_50\MSSQL\Binn\sqlservr -m -s<Instance Name>"

next open another command prompt window and run sqlcmd.

'RESTORE DATABASE master FROM <backup_device> WITH REPLACE'

when you restore master, you should be able to restore the rest of the system databases as well from backup.

I hope this leads you at least in the general area.