Blackmailing my next door neighbor

I'm a computer tech and I have been doing this for about 10 years. I work for one of the bigger computer companies and I'm 31 and single. I make very good money so instead of wasting it on rent, I bought a small home in a very nice neighborhood. To make extra money to party with I fixed computers systems on the side. I put flyers out everywhere and would average about one computer a week or so. It was nice extra money and it was easy for me to do. I have not had a permanet girlfriend for about 2 years. I've lived in this house for over a year yet but I just couldnt seem to find the time to get out and get a girlfriend. My big entertainment now was using my computer at night on the internet and chatting with girls and reading the newsgroups. But I was really starting to miss having some female companionship. One night I was sitting at my computer when the door bell rang. I got up and went downstairs and it turned out to be my next door neighbor. Her name was Karen and she was a very nice looking girl of about 27. She was a school teacher at the local school down the road. He husband worked for a large trucking company and he was gone a lot of the time. I had talked to Karen a few times before in the year I was here but not really that much. I invited Karen in and asked what was up. She explained that about three days ago, lightning must have hit the wires going into her house because her tv, stereo, oven, and computer were all blown up. The house insurance was going to pay for everything but she needed her computer back as soon as possible. Her husband was away and she couldnt get in touch with him about what she should do. She wondered if I could take a look at it because she really needed it for her school work. I told her I would be more then happy to take a quick look and see what I can do. She invited me over and I walked with her to her house. Of course she lived next door so it was only a few steps to her house. We went to the spare bedroom to where the computer was and when she turned it on. I could start to smell a burning smell. The computer didnt come on or anything. I told her I would take the CPU part of the computer back over to my house and see how bad it is. If it wasnt bad I might have it back to her tomorrow night. She thanked me and I unhooked the unit and took it back to my place. I sat it on the table and got a screw driver and opened up the computer. Yea, the lightning had done a job on it. I could tell right away the video card was bad. It had burnt chips on it and that was probably what was making the burning smell. I grabbed a spare video card and then got a spare mouse, keyboard, and monitor from out of the closet. The computer now seemed to power up fine. I ran a few diagnostic tests on it and everything seemed to be fine. I notice they had a 60 gig hard drive in the system. That was a pretty big hard drive for home use. Just because I was bored I decided to look around the hard drive. I noticed that the computer had a directory and everytime I switched to that directory it asked for a password. I ran a utility I had and it said the directory had 10 gig of data in it. Wow, that was a lot. Now it got my curiousity up. I looked over the rest of the computer system and it mainly had word files and some school stuff from Karen's k**s at school. I then decided to see if I could get into the locked directory. I tried a lot of things but nothing seemed to work. I went to my computer upstairs and logged into the internet. I did some searches and finally found a program that would tell you passwords used on the computer if you could log into the computer as an administrator. Well, her computer didnt even make me log on. I wasnt sure if the program would work but I downloaded it. I took it down to her computer and ran the software real quick. BINGO, there was a list of about 8 passwords that the program found hidden in the computers registry. I tried each one at a time.