I would definitely suggest backing up immediately. That way things can't get any worse and your files are protected if something fails.

Try reinstalling windowsXP over itself. If your PC supports booting from the CD drive, you can put the Windows CD in the drive and power up the computer. It should ask you to boot from CD and you can follow the prompts... probably called something like 'repair an existing Windows XP installation' or something like that, but I've never done it in XP (yet). This process will replace all of your windows files but not your personal files.

Does anyone know of a website that walks someone through this process?