Well at a rough guess I would say that that e-mail contained something more than just what was written in it and has deployed some form f virus into the system.
Run a AV scan over the system from a Floppy or in Safe Mode depending on what type of AV product you have available and also run some form of Spy-ware also if it is installed.
If there is no AV product on the computer and you can not get access to one to scan it then the best option is not only to reformat the HDD but to first wipe it with one of the Utilities from the HDD makers as even a Format could leave the Virus Intact as it only write to one in every three sectors so on a reload the virus could remain intact and you could find yourself back in this position again without ever getting it working properly.
If you are happy editing the Registry you can dig around in that to delete the problem as the error message is telling you that you have a registry error which is preventing Windows from checking its real status as far as Product Activation and verifying the Product Key that was used when XP was installed.
If SP1 was installed you may very well get this error message as well because MS decided that quite a lot of official product keys where no longer valid and they wrote SP1 to prevent Windows from Loading after SP1 was installed on the suspect Product Keys. If that is the case you will need to contact the vendor if it is a brand name machine for a new product Key and change it over. But I would first be looking for some malicious code that is causing the problem.
The bit of code could also have changed the product key so boot it in safe mode and check the product key has not been altered. If it has you can use Key-finder Magic Jellybean Key Finder to alter the product key back to the original in Safe Mode.
