XP Desktop Problems

On our PC with Windows XP Home, we have begun having serious problems connecting to any programs located on the desktop as well as any many other programs. Example: Every time we attempt to go to Control Panel, or My Documents the screen goes totally blank for 5 seconds then returns. We are unable to access most programs. We are able to access some programs through RUN, but not many. It has dramaticly reduced our ability to use the computer.
I dont know if it matters, but it appears we have been hit with spyware and in addition there was a period of time where the System 32 folder appeard at every boot up.
Thank You.