Not sure about the last two hun, tho you say when you click properties on your desktop you get something about "system32" ??? Can you get me a pic of what you get when you right click on the desktop and select properties?
the line
O4 - HKLM\..\Run: [msconfig38] mssvcc.exe is still there, so that needs to be FIX CHECKED then re-scan again with HiJackThis (post a new log file.
At this point Kim, I am getting to the end of my registry knowledge (

) and there might be something I am missing.
Go to this site :
http://www.d-a-l.com/help/ , register like you did with PassionFord and start a help topic in the "Windows XP Help" forum. Tell tham what you have told us, and include an uptodate HJT log files (like you have been posting for us.
When I had problems I couldn't solve, I did this and there are some UBER geeks on there

that really know their shit and they have saved my ass several times now!!!!
Gotta be worth a try
Now, before re-installing XP (always a last resort ideally) is your copy registered? On the lappy somewhere you should have a sticker that looks like this;
This should have a long code on it that is the product key licence - you need to make sure your's is actuallt registered otherwise it will come up as a non-genuine version when you try to get updates from Microsofts site...
To find out if yours is registered, go to CONTROL PANEL and double click the SYSTEM icon. This should open a small window with your details in it, and look like this;
In the second paragraph, REGISTERED TO, should be your details, or the details of the person who had it before you, under the name should be a long number like this;
xxxxx-OEM-xxxxxxxx-xxxxx (the x's would actually be numbers lol)
If you don't have this then you need to register your copy of XP with Microsoft via the web in order to recieve a validation in order to download updates and patches. You will need your product licence number for this (if you can't see it on the computer, look in the packaging with your discs as it is sometimes in there aswell.
Only thing is - I can't remember how to activate/register the licence code

It's been so long since I done it, and I always do it after a fresh install
Someone will know so hold off re-installing for the time being tho babe