My friend uses a Macbook Pro with Snow Leopard 10.6.2. She uses both FileVault and Time Machine to preserve her data. Recently, she suffered a hard disk failure. After restoring from Time Machine using the Snow Leopard install disk, she gets the following error when logging in:

You are unable to log in to the FileVault user account at this time. Logging into the account failed because an error occurred.

When examining the file system through Terminal, I noticed her home directory is not present: there is no /Users/username directory, or the FileVault .sparsebundle file that's supposed to be there. When using Time Machine.app on /Users, it appears as if her home directory as never there. Additionally, I did a search on the backup disk with the following command:

sudo find /Volumes/backup -name '*.sparsebundle'

No results. She told me that after working with some large data files, Time Machine would come on, and it would sound like it was transferring a lot of data to the hard disk. Time Machine must have been doing something, right?

How can we recover her files? Are they still there?