You are probably better off starting from scratch. System Restore/ System Restore Settings/ tick the box Turn Off System Restore and reboot (you will lose all past restore points)Turn system restore back on and reboot, it will have created a new restore point. Test it by doing a restore on that point. If it works OK. If not go to Start/Run/type sfc /scannow (watch the space) you will need your XP CD and that should fix it.
I have just had the same problem which wasn't cured by switching it on and off but I found the following advice on re-installing System Restore which worked a treat.
Go to Start - Run and type %Windir%\INF then press enter.
In Windows Explorer go to Tools - Folder Options - View Tab and uncheck “Hide extensions for known file types”.
Find the sr.inf file, right click on it and select Install.
If the Files Needed dialog box appears, click Browse and point to the i386 folder on the Windows XP CD or to the i386 folder on the hard drive, if it exists, or for systems updated with the Service Pack 2 CD or Downloaded from Microsoft, browse to the C:\Windows\ServicePackFiles\ folder.
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