The viral process you describe seems to be Sasser worm (nearly identical stop process and repair regimen as the Blater worm only using the Sasser patch & the Sasser removal tool. Can you get into XP normally at all, even momentarily? If you can, right click My Computer, choose properties, then choose the advanced tab, then Startup & Recovery, uncheck the box "Automatically Restart" under System Failure. Then restart the computer. Then go immediately to (use an uninfected computer if possible), www.grc.com, get most of the freeware tools listed there, but especially Shootthemessenger & DCOMBobulate, make sure you lso pick up the Raw Sockets tool. Also go get the Sasser repair tool from Symantec.com, and the patch suite from MS.
Turn off System restore first, install DCOMBobulate (closes unneeded DCOM ports stopping those nasty RPC clients from running), install Shootthemessenger (this shuts of Windows Messenger and doesn't stop th MSN Messenger at all), who needs those nasty backdoor MS ads anyway.
Patch the computer to keep Sasser from reinfecting after the tool is run. Then run the Sasser removal tool, update (or reinstall your AV if the worm affected it from loading normally) your AV and Firewall (I personally use both the XP firewall and ZA free w/ no problems between the two), run a full scan and do the final cleanup.
Good Luck!