B*gger
It was a long shot. In general, I favour trying to restore a machine using detailed techniques. That way I feel I know what is going on and have some degree of control.
Having said that, this last week-end I had to repair a Win 2000 machine using the install disk - asking for a "repair" installation. The problem was something similar. It was long winded but it worked so no data or Programs were lost. Actually Sonic Stage had to be unistalled and reinstalled. Maybe that was the problem all along.
This may be an option for your friend. Although you've just installed Win XP, why not start again with the install disk and ask for a repair installation? You wouldn't go for a reformat option, I know, as that would destroy data.
Meanwhile I'll continue head scratching and researching the MS Knowledge Base. Sorry my bright idea didn't work.