Try to temporarily work around this issue, turn off the Welcome screen and use the classic logon screen instead, see if you have the same hanging. For additional information, click the following article number to view the article in the Microsoft Knowledge Base:
291559 HOW TO: Change the Logon Window and the Shutdown Preferences in Windows
Check in your Event viewer for any clues.
Look in the System or Application folder. You can get to the Event Viewer via right click My Computer icon and select Manage.
Any errors logged in the Event Viewer can be expanded by double clicking on the error line.
Take any event error I.D. number and search for it on these sites.
816873 - Windows XP Welcome Screen Appears to Stop Responding (Hang) During Logon
How to Troubleshoot By Using the Msconfig Utility in Windows XP (Q310560)
Try running ChkDsk to check your drive for errors. Right click your Drive icon/ Properties/ Tools/ Error Checking.
HOW TO: Verify Unsigned Device Drivers in Windows XP
Removing adware & spyware
Before Posting a Hijack log file - Best Practices
faq608-4650
Check if you have any unrequired services running in the background. This site is a good reference to check them out.
Try Safe Mode (Do you have this problem in Safe Mode?).
Run the System File Checker program from the Run Box by typing.....Sfc /Scannow in it and have your XP CD handy.