Can you open other tools like RegEdit and MsConfig?
One's Anti Virus is only as good as its current definitions that is why a second opinion is always worthwhile. Anti Virus scanners tend to concentrate on virus infections and may miss other forms of malware, this is why a layered form of protection is desirable.
Removing adware & spyware
faq608-4650
Try the free version of "Ewido"
Windows Defender
You may get System Restore working if you try it from Safe Mode. Incidentally how is Task Manager in Safe Mode, or in Normal Mode as another user?
Also check these.
Q310405 - How to Turn On and Turn Off System Restore in Windows XP
Q302796 - Troubleshooting System Restore in Windows XP
Does Taskmgr.exe exist in the Windows/System32 folder? You may have to get another version from the CD or elsewhere.
Some general things to try.
Try running ChkDsk to check your drive for errors. Right-click your Drive icon/ Properties/ Tools/ Error Checking. Select both boxes.
Run the System File Checker program from the Run Box by typing.....Sfc /Scannow in it and have your XP CD handy.
HOW TO: Verify Unsigned Device Drivers in Windows XP
If the problems begin to mount and increase, you could try repairing windows by running it over itself. You will lose all your windows updates but your files will be untouched.
How to Perform an In-Place Upgrade (Reinstallation) of Windows XP (Q315341)