This is almost certainly a software rather than hardware problem - you don't mention any unusual beeps on POST. So, I would assume that a process corrupted and has impacted you OS.
You need to start off by loading XP in safe mode (F8 during boot-up) to attempt a repair. If this works, this may itself resolve the issue. If it won't load safe, boot from your CD and run the repair tool. If it does, see if that clears the problem. If not, reboot safe and attempt to run your latest restore point. If still no luck, go back to an even earlier point until it does work. If still no luck, try the repair from CD.