XP restart

This is not enough info to tell. Go into your bios and change the parameter that says reboot on Failure. Now, instead of restarting, windows will hang on the BSOD and give you information you can use to troubleshoot the problem.

You are most likely infected. Activate XP's firewall, or get a stand alone product, then update and run your antivirus and antispyware programs. If you can't get them to update or run, use another computer and go their web sites. You will undoubtedly find info on this problem. You can't install SP2 until your machine is clean. Another work around is to disconnect from the internet, use the system restore to a point where the machine worked fine. Then install/activate a firewall. Run your antivirus/spyware removal programs. Then reconnect to the internet and update to SP2

Try booting into safe mode. When the PC first comes on and you see the 'Splash Screen', immediately start hitting the <> key. You should boot to a Windows Boot menu. For now just pick 'Safe Mode' (note, at this point do not pick 'Safe Mode with Networking' or 'Safe Mode Command Prompt'). If Windows successfully boots into Safe Mode, try to run an application. If you still can't, then your OS is probably hosed and will need to be re-installed. If you can, then shut down, and reboot the computer into Safe Mode with Networking. Now download all the updates for your Anti-Virus and Spyware tools (I recommend Spybot S&D, Ad Aware, and Microsoft Anti-Spyware. If you are advanced enough and comfortable with viewing and removing registry keys, Hijack This can also be a life saver - however if you don't know what you are doing you can very easily destroy your OS so use with caution). Once you have the updates, start scanning away with your tools. Continue to run the scans until you either A. find no more 'Gremlins' or B. You continually find the same Programs after running the same tool multiple times (eg - You've run MS Anti-Spyware 4 times but still find New.net, at this point you can feel confident that it's not coming off that way). After doing this, reboot into Safe Mode again and run the scans one more time. If you don't find anything or it's not any worse than it was before you rebooted, then try rebooting back to Normal mode and see if you can run any applications.