IT may not be XP Compatible. Even if it was originally sold as XP Compatible it may not be SP2 XP compatible as there where quite a few changes introduced in SP2 that stopped many XP Compatible Computers.
The ability to start in Safe Mode tends to point to this as in Safe Mode you are not loading all the drivers or software that you do in normal mode so it's possible that that NB will not work with XP.
But just to be sure as M$ no longer has an XP compatible tool available you can run some diagnostics off the Ultimate Boot CD available here
http://tinyurl.com/3jnpy
The first test to run is a RAM test to make sure that the RAM isn't breaking down and then some of the other Testing Utilities.
Also if you are using an upgrade version of XP you can install it directly from a clean HDD that has been wiped with something like Boot & Nuke available here
http://tinyurl.com/4rfur
Wipe the HDD and then boot off the XP CD and when you are asked for the older version of Windows insert the Y2K CD and then when it accepts the older version replace the XP CD and finish the install. It should work much better that way if the system will work with XP.
Col