Windows XP Product Activation

My Friend was running 120 day evaluation copy of Windows XP Professional until it expired. So he purchased the retail upgrade version which was subsequently installed on his PC.

Upon first logon after the setup had completed completed an error dialog call “Windows Product Activation” popped up with something like “A problem has prevented the system from registering the product. Error is 0x80004005” (I can’t remember the message description exactly, but the error number is correct.)

If you click OK (the only option) the systems logs out! The only way to log on to the system is in safe mode. The problem still appears if you start in Safe mode with Network Support.

Any ideas?