Win XP blank password won't log in

I have a friend that received one of those phone calls from "Microsoft Support" telling him that his machine had problems and they wanted to help. Unfortunately, he let them in remotely. When they told him he had to pay for service, he declined. They then turned on SysKey security so his machine would not boot without a password. I removed that without much problem and XP now boots again.
The problem is that it is asking for a password on all four accounts and the administrator account. I used PC Unlocker and blanked all accounts (it already said they were blank too). When we rebooted, all of the accounts still require a password. The linux boot disk I used to remove the syskey security can also clear passwords, so I booted that again and it also says that all the accounts have blank passwords but none of them will log in. Each and every one pops up the little bubble saying that the password is wrong.

Has anyone seen this before and what can we do to fix it?
 
Try one account and set a simple password. If that fails too, then investigate changes to encryption software.
 
That is the problem, I can't set a password as the system will not log in. ALL accounts say they have passwords set when everything I have says all the passwords are blank.
 
So, Looks like you have to attack the HD by booting a CD.
Pick a scapegoat account and go thru the process of recreating a UserProfile -- see google for details.
 
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