Try this - it will re-install system restore
Enable hidden and system files in Explorer if you haven't done so already. To do this, open Control Panel | Folder Options | View, and in Advanced Settings under Hidden Files and Folders, select "Show hidden files and folders," Below that, uncheck "Hide protected operating system files." (You will probably want to restore this option later.)
From Start | Run, type %SystemRoot%\inf and press Enter.
Find the file named sr.inf. Right click on it and select Install.
You may be prompted for your Windows installation media, or a directory on your hard drive that has the \i386 folder. If you installed Service Pack 2 (as opposed to installing a version of Windows XP with SP2 preinstalled), use the folder %SystemRoot%\ServicePackFiles\i386 .
Let me know how that goes - it should take no more than 10 minutes
%SystemRoot% is C:\windows