I have had a similar recent problem with a joypad which as with your card reader was unable to be installed automatically.
I tried everything I (and this forum) could think of but the only way I resolved the problem was by performing a clean install of XP and attaching the hardware before installing any more software (or usb hardware) - it was then recognised and intalled no problem.
I guess that it may be some sort of software issue but I the original XP installation that I had to redo was only about one month old and did not have any weird or wonderful software installed.
The only other thing I would suggest before reaching for the disks would be to uninstall any other USB hardware on your system. (& I mean uninstalling the driver software not just unplugging the device).
Out of interest what other usb hardware do you have installed?