[Firzair]

Hi StreamOfTheSky,
sounds like a reinstall is in order. As there is already a root kit installed, you should just backup all data and reinstall.
After reinstallation, before connecting to the internet, you should install all xp updates. There are some tools, that let you download the updates to your harddrive for copying them to the new maschine.

Then install:
Real antivirus software
Firefox 3
NoScript extension for firefox
Desktop Firewall like zonealarm
Spybot Search & Destroy
AdAware
... your other default software

Then make a backup of the system with a drive image tool.

If you want to browse really safe, you could install Moka5, then use the fearless browser with it. It starts a virtual linux within your xp with firefox installed for browsing the internet. You are still able to download files and use them in your windows xp, but all those files are downloaded in the linux area to a shared drive.
Nothing gets automatically started in the windows environment. There you can scan all files using the antivirus software and upon confirmation of being clean you can just use them in windows.
I use this setup at home, it not too much of a hassle and the security is high.

Hope that helps.

Greetings
Firzair