Is this 2500 series Cisco router toast?

Hi,
I don't have a lot of experience with Cisco router, but I think this is a problem.
I hope this is posted in the correct location since I thought people in networking might have more experience with Cisco routers than the hardware bunch.
Anyway, before I recommend to the client that they replace the router, I would like some opinions.
I have a Cisco 2524 that may be the source of network problems.  I've been going mad trying to isolate the cause of a myriad of seemingly unrelated problems so I needed to reset the router password.
What happened was, when I attempted to reset the password, I lost the entire configuration-the router went back to all its defaults.  I chalked this up to my inexperience so I reconfigured the router.  Subsequently, I had to shut the router off again, and when it rebooted the configuration was again back to default.  I thought maybe I forgot to use the "copy running-config startup-config" command so I configured the router again for the second time.  Well last night, I was telneted into the router when it suddenly dropped the connection while I was trying to create an access list.  Sure enough when I called the client this morning their internet was down because the router lost its configuration.  Strange thing though is that when I had the client hyper-terminal to the router, the router's name that I put in was still there, but the rest of the configuration was gone as demonstrated by the show config command.  Am I missing something here or is this router screwed up?  Please give me your thoughts.
Laura