I do network admin for a medium business and have had a few issues with svchost, specifically c:\windows\system32\lhmsvc.dll running via svchost.exe -k LocalService.
Use process explorer to try and find some more detail of exactly what process is causing the issue, slowly stopping each service until the CPU stops running at 100%.
See here for help
http://www.bleepingcomputer.com/tuto...torial129.html
There are a number of svchost related issues resolved in XP service pack 3, so I would first try applying or reapplying SP3.
If that doesn't work, try updating the WindowsUpdateAgent as per
http://support.microsoft.com/kb/932494/en-us and
http://support.microsoft.com/kb/927891/
You could also try these steps:
http://support.microsoft.com/kb/927385/en-us
I have had luck with these steps, which made a sluggish PC seem fresh again, but it depends on what service within svchost is causing the issue.