Did you try booting in safe mode again? To do this tap F8 on your keyboard when your computer gets to this stage.
Or just keep tapping F8 when you turn on the computer, it won't make it blow up or anything.
A screen should appear, similar to this one:
Select 'Safe Mode' and press Enter, then select 'Microsoft Windows XP Home Edition' and Enter again.
If you come up with a dialog box that says:
"Windows is running in Safe Mode. This special diagnostic mode of windows enables you to fix a problem..
..blah blah blah..
..To proceed to work in safe mode, click Yes. If you prefer to use system restore to restore your computer to a previous state, click No"
Then click Yes.
Let us know what happens.