If you have genuine activated copy of Windows XP, try this!
This problem turns out to be that the Winlogon userinit entry is being set to "wsaupdater.exe" instead of "userinit.exe".
1. Boot from a Windows XP CD and go into the recovery console
2. Log into the administrator account.
3. Change your current directory to the system32 folder. type:
4. Overwrite wsaupdater.exe with userinit.exe. type: copy userinit.exe wsaupdater.exe
5. Exit and reboot. type: exit (computer
will automatically reboot, take CD out).
The symptoms of this problem match mine exactly. Malware found a trojan house and asked for the CD.
after the computer was rebooted, auser logon screen appeared for teh first time. As soon as I log on, it says that if getting my settings and then logs out. I did everything in your fix, however under c:\windows\system32 there is no userinit.exe or a wsaupdater.exe. My gut tells me I am in the right area but I don't know where to go from here.