USB sees hardware but doesn't recognize

Problems with USB ports that can sense when new hardware is plugged in but cannot determine what to do with it. All the USB hubs and controllers appear to be enabled and working properly. Plugging in any sort of USB hardware like printers and Ipods elicits a "unknown device" and no drivers being loaded.

Is this a software problem or a hardware problem? If hardware I'm guessing since the USB ports are hardwired onto the motherboard, it's not really cost effective to repair but rather replace. If software related, where else can I look? This is a standard XP Windows system, four external USB ports.