Unbootable PC after downloading - help!

Your HJT log is now clean.

How do you suggest I turn off System Restore?

It doesn't seem to be that important now to play with it.

I'd like to ask you to try Safe Mode one more time, and see if you can execute "explorer.exe" from Task Manager command.

spybot found just tracker cookie's

This is what I thought.

I'm sorry to say that Safe Mode is still unresponsive - just a black screen with "safe mode" in each corner.  No response from the keyboard or mouse clicks.  The mouse pointer moves - though nothing to click on or select!  Can't get ctrl-alt-del to do anything.

It's pretty sick isn't it!

Sure it is. I'm not even sure what to do next, because your computer seems to be clean, but I believe, that bad guy(s) you caught might have done some damage to system/boot files.

Do you have Windows XP CD, Recovery CD? How important is your computer data?

Yes, I have a windows XP cd and the UBCD4WIN which is also bootable. 

I'm pretty sure all my important data is on an external hard drive (now attached to my laptop - the one I'm posting this from)  I also have a second hard drive in the desktop with data on that I'd like to keep.  The c: drive is pretty much just the OS.  I use Google for email/contacts/calendar/favourites so no problem there.

In that case, I think, our best option would be to try XP repair option.
Nice tutorial here:
http://www.techspot.com/vb/topic8356.html

OK - I'm trying that right now.  The XP CD I have is definitely not the original installation cd, so not sure if that will trip me up but I'll give it a shot!

It should install, but later in order to download updates, you'll have to call M$ to get activation code...
Eh, I'm even not sure how it works in case of repair installation.

Hmm...well the setup keeps getting stuck on 33 minuties to go while "installing devices".  I've re-started it several times now after having disconnected everything external (printers, etc) and it gets stuck at the same point each time.

Any further thoughts?

[Moderator]

Yes. You need an official XP CD to do a repair install.
You can use another one but it needs to have flashy holograms and have Microsoft written all over it.

P.S. You want to find one that includes SP2 otherwise you will need to slipstream it into the one without it in order for it to work.