Um, wow. that's a pickle
first up the install of the OS did it have a separate partition or drive for the local files eg. My Documents?
if so unless if its a real nasty virus your docs should be safe, if it is a standard OEM install your in trouble.
First thing i would do mate is get yourself a copy of a very small distribution of Linux, like Puppy or Slitaz which will run totally from RAM. From memory slitaz is only 28MB for the whole OS however it is naively in french so the documentation for English speakers like us is near useless and the commands are OS specific, so probably go for puppy.
Burn the ISO do a blank CD, put it in the optical drive and power up. On Boot when the screen is black press Delete (most common key for different motherboards) and enter the bios settings, check and edit the boot device priority to 1st USB 2nd Optical Drive 3rd local HDD. save and exit
it will reboot and this time puppy will load up follow the few setup questions. and will log you in.
once in mount your hdd and open up file explorer, i think its nautilus in puppy and do a full carbon copy of your HDD probably SDA (SDA1, SDA2, ...) to an external HDD
Once complete Shutdown and iff possible save your puppy config settings to a usb stick it will prompt you on close and remove disk. Insert XP SP2 disk and hit enter it will shut down. Reboot and try a repair of the OS, if no success do a full install.
First thing you do before worrying about your now backed up data is install virus protection. for windows i lie AVGFree as its good and its free, update it, full comp scan the reconnect your external HDD and start the ardous task of one by one copying your old files to the fresh OS scanning everything you bring over, then another full scan. After this reinstall other programs
If you have any trouble let me know and i can walk you through the whole step by msn or email or something.