This issue happens when a program (sometimes legit sometimes a virus) replaces the logon program registry entry or the file that entry looks for.
You can use this boot CD http://www.livecd.com/registry_editor.htm
to edit the registry on the PC to bring it back to normal. Key you need to change is bellow.
"Userinit" = "C:\WINNT\system32\userinit.exe,"