IE 8 on Win XP SP3 briefly opens then immediately closes when starting Windows normally and in Diagnostic Startup. However, IE 8 opens and works fine in Safe Mode With Networking. I tried resetting IE but that didn't help. I also cannot run Windows Update.
Have you tried the full Clean Boot method, as described here http://support.microsoft.com/kb/310353
It's a bit of a pain but it might help you determine if there is a plug in or another third party program or service causing your problems.
Have you recently performed an in place upgrade repair of your XP Installation?
I've resolved the issue. Despite doing a Clean Boot, I found that Webroot SecureAnywhere was still starting up. When I shut that down, IE would then open and work fine. WSA was somehow blocking IE. Uninstalling/reinstalling WSA resolved the issue.