I have exactly the same problem, most likely caused by a virus. I removed the HD and set it up as a slave in another system. Then removed all viruses, trojans and malware.
Xerxel, in an above post, mentions a registry edit. Problem is, I am not able to edit the registry. With the HD in another system, I can only access the registry on the boot drive. When I place the HD in the original system, I can not get past the welcome screen.
Do I really have to do a new install of XP like "ajfish" in a previous post? Is there a way to edit the registry when the drive is not booted?