Here is what I did after following links at the bottom of this post:
1. I re-installed SP3 and rebooted - this had no immediate effect but it may have been a factor in later success
2. I installed the windows recovery console
3. I booted into the recover console and did the following commands: cd ie7\spuninst and batch Spuninst.txt again batch Spuninst.txt then exit I repeated the batch because the 1st time there were permission errors but the second time there were no permission errors
4. After the reboot, things started to look promising when the active desktop windows would not display
5. I Installed IE7 from the download distribution file
Upon the next reboot IE7 was restored and working
I think steps 2 through 5 would work, but I have already lost too much work time go through the whole thing again to test.
How to reinstall or repair Internet Explorer in Windows Vista and Windows XP
http://support.microsoft.com/kb/318378/
How to perform an in-place upgrade (reinstallation) of Windows XP
http://support.microsoft.com/kb/315341
How to perform a repair installation of Windows XP if a later version of Internet Explorer is installed
http://support.microsoft.com/kb/917964/