I have experienced a similar situation with a recent Norton AV update. My Windows 95 PC took about 5 minutes to start up instead of its usual 2 minutes after the update, or else it got stuck starting up. If it did start it was rather unstable. I got round it temporarily by using a programme called ConfigSafe to restore the startup files and registry files.
I don't know much about Windows XP yet, but I understand it has a similar feature to ConfigSafe built in, which allows you to restore back to a point provious to installing some problem software. Someone more knowledgable on Windows XP should be able to shed some light on this.
The next update to Norton AV after the problem one put things back to normal.