I've got pretty much the same problem, with a few differences:
1. It gets to the XP flag, but instead of hanging there, it restarts again. It then repeats this in an endless loop.
2. Each time it restarts it gives me the option of starting in Safe mode etc, but the keyboard won't allow me to toggle. So it starts up in Normal mode in the endless loop. (ie I am unable to use Safe mode.)
Any ideas? I'm happy to shift this to a brand new thread if I need to. It just sounded very similar to Sean's original problem.
I don't know whether I have SP3 - unless it automatically installed in the background!
Any ideas would be very, very appreciated. TIA.