Try downloading and installing this Link Removed
And reboot. Then see if that helps with the problem, it's helped me in the past with similar issues.
Worth a try.
Have you attempted to use this link Link RemovedIt appears that you can no longer download IE 8 for Win XP from Microsoft so I haven't been able to try uninstall/reinstall.
Have you tried the full Clean Boot method, as described here http://support.microsoft.com/kb/310353and in Diagnostic Startup. However, IE 8 opens and works fine in Safe Mode With Networking