I had a similar problem with my older laptop(Duron 1.1ghz/768meg/40gig). I did a fresh install of XP but it was sp1, it needed alot of Windows updates. So I was trying to do auto updates and my computer was running extremely slow and freezing and I saw in task manager that a process called SVCHOST.EXE was taking up alot of cpu and ram(90-100% cpu and 50mb ram). So I had found the problem. SO I did some research online and found out that this is a common problem with older less powerful computers and has to do with a problem with the WIndows auto-update service. I disables the auto-update service in the Admin. setting and the problem was gone. Now the problem was that I couldnt update Windows with the service disabled. So I figuired out an eeasy way areound it. If you dont already have it download Firefox, its better than IE anyways IMO. Setup Firefox and then intall the extension Windizupdate. Its a small extension program that basically lets u download and install Windows updates using Firefox. I let Windizupdate scan my computer and it found more than 70 updates I needed to install, I installed them and rebooted and everything was fine. Only problem was that for some reason it wouldnt install SP2 I had to do download it and do it manually. After I did all this I wanted to see if the Autoupdates would work now that the computer was all up to date. And to my surprise it worked fine now, Microsoft must have fixed the problem?? Or maybe the fact that i had over 70 updates was overloading autoupdates, Im not sure but all I know is everything is back to working fine again. So do a virus, spyware, malware scan using at least two differant programs to make sure u get all the threats. YI would then get a program like CCleaner and clean ur disk and registry to make sure everything is all clean. If none of this helps then try disabling autoupdates, it should work, it did for me.
Just curious what kind of computer are you using and was it a fresh install of XP?