Well first did you post the HJT log of your own initiative, or did someone direct you to do that (Such as a malware removal expert or TSF Staff member) ?
The problem is that having two simultaneous threads running can cause problems. You get one advice by someone on one thread that may conflict with/contradict or undermine the advice you are getting on another thread.
So I think you need to pick one.
If you want "General" advice, my suggestion is that you make a brief post on the Securities thread stating that you are seeking help here and putting that thread on "hold" pending the outcome of this thread.
You can put this thread on "hold" and bump the other thread and wait for a malware removal expert to help you.
There are advantages & disadvantages to both options. Here you will find more help faster, there the help is "slower" but is much-better qualified for malware removal.
IMO, the worst option is to get various people involved in both threads.
Personally, I think your issue is probably not malware related (at this point) and think you should at least spend some time exploring your problem here, although ultimately you may wind up going back there for malware removal; it's too early to say.
Another point is please do not refer to any other thread for information on your problem, put the effort into communicating that information in the thread where you are asking for help. You haven't done this, but it happens often and it is HIGHLY annoying.
Okay, to your problem:
What I have done to date. ran msconfig and un-checked, one by one the load startup items,process system INI file,Process WIN INI file, load system services. All the above had no effect.
A valid strategy. But the way this reads is that you unchecked only one at a time. If you have not done this, I would like you to uncheck ALL of the items in the "Startup" list -AND- ALL of the NON-MICROSOFT items on the "Services" list. The reboot and see if it boots to Desktop.
If it does, that would be an indication (as I think you suspect) that your problem is with an Application and not something to do with winXP.
However, if it does not, that would be a pretty good indication you have some file corruption with WinXP, in which case running sfc /scannow would be the next logical step in troubleshooting.
However, if you would like to avoid the hassle of running windows Updates all over again (sfc resets your system files to their "disk original" versions), booting to Windows Recovery Console and running:
(in this order)
as "General" troubleshooting fixes may solve the problem without too much effort on your part. I always run these as a line of first defense, before getting to involved in troubleshooting efforts. Sometimes you get lucky and fix it the easy way, and sometimes it takes more time & effort.