That popup looks very reminiscent of one we're seeing at work occasionally on Win2k, but I can't say whether the locations are exactly the same. I haven't had a chance to troubleshoot it yet.
I'd suspect that a "security" update from Microsoft broke a .DLL. Or perhaps something like [link|http://z.iwethey.org/forums/render/content/show?contentid=246335|this] is biting you.
Can you reinstall XP SP-2?
HTH. Good luck!
Cheers,
Scott.