I wrote in my last reply that I rebooted after the reg fix.
Mine, as I said, is a week old installation and I haven't yet changed any of the default settings. But I nevetheless went in and checked - in the properties dialog the "Do not move files to the Recycle Bin" box remains unchecked.
Thanks for the Microsoft support link that you provided - but it does not apply to Win XP. Microsoft says its for Win 2000 and Win NT. Though XP is indeed an offshoot of NT, I think MS should have it mentioned if the article applied to Win XP.
I also discovered that though my Recycle Bin stays blank, the "properties" dialog of the local "Recycler" folder mentions that it has 5 files and 3 folders in it! I just have no way to see or delete them...
Resolved the problem today by methods explained below:
Opened the "Recycler" folder on C: in Explorer. Saw a folder (for the first time) named "S-1-5-21-507921405-746137067-839522115-1003". This contained another folder within it with almost an identical name (can't remember as already deleted). This folder contained another empty folder named "com4".
Tried to delete "com4". Explorer responded that it could not find the file! Trying to delete it's parent folder resulted in "cannot delete com4". So I guessed some serious sh*t has happened.
Tried my old and faithful lieutenant, the "unlocker" (http://ccollomb.free.fr/unlocker/). It reported that nothing is using the "com4" folder. I then requested a deletion of "com4" folder. It took a bit longer than usual, but finally was able to delete the "com4" folder.
I was able to then delete its parent folder successfully from Explorer.
Came back to the Desktop and tested the Recyle Bin by using a dummy file delete. Saw that it has resumed its normal operation once again.
Thanks a lot for letting me post my problem and the subsequent suggestions.