This is a very common problem. It is potentially diasastrous, yet it is not addressed or even acknowledged on the Microsoft answers website.
The issue is that on the first restart after a Windows XP repair install a screen appears saying ‘This copy of Windows needs to be activated before you can log on. Do you want to activate now?’
If you click no, the computer logs out. If you click yes, the computer loads the desktop background but nothing else. Control-Alt-Delete does not work, nor do any other tricks or workarounds to get a task bar or start menu or any programs running.
The solution is as follows:
Start the computer into safe mode. It will probably not start in safe mode with networking, but will start in ordinary safe mode.
Check whether you have XP Service Pack three installed. If SP3 is not installed, install it. If you don’t already have a copy, download the XP SP3 standalone installer from Microsoft and burn it to a CD. It will run and install in safe mode.
Restart the computer into safe mode.
Install Internet Explorer Eight. If you don’t already have it, you should download the IE8 standalone installer from Microsoft and burn it to a CD. It will install in safe mode.
Restart the computer. It should now start without a problem. You may still get the activation screen, but if so, the activation window will now open, and you can activate over the internet or via telephone.
This problem is caused by the repair install corrupting internet explorer seven, making it impossible for the activation screen to open.
Installing Internet Explorer 8 fixes the problem. But IE8 will not install if you do not have either internet access or XP SP3. In this situation you do not have networking so you have no internet access, so you need to install SP3 first.