XP service pack 3 is still in Beta stages so installing it may not be advisable, unless you are familiar with Beta testing Service Packs. Usually people who Beta test a new OS or Service Pack do so on a "throw away" drive. </end rant>
Lets get some AV on the computer.
Download and install AVG Free
http://free.grisoft.com/doc/2/It offers the same amount of protection as the paid version as far as virus protection goes. Do a full scan and see if it finds anything.
If worse comes to worse, try going to a restore point before this started happening. Then immediately install a new AV before doing anything else.