1. Boot using your winxp cd.
  2. Enter recovery console.
  3. at the command prompt go to C:/windows/system32
  4. type: copy wsaupdater.exe
  5. Exit and reboot normally. You should now be able to logon. But you're not done yet!
  6. Run regedit
  7. Find the Userinit key in: HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\WindowsNT\CurrentVersion\Winlogon\
  8. Modify the entry: C:\WINDOWS\System32\ so that it reads: C:\WINDOWS\System32\