What does it do if you do sfc /scannow right now? Try without the CD in and wait for it to prompt for the XP CD.
Normally I wouldn't go out of windows and use DOS (the simple text and keyboard based operating system) without backing up my data but then again it is a microsoft application that you'd be using so the chance of it harming your data is slim to none.
Theres no need to disable Norton before you restart.
Do you have a notebook/laptop or a desktop PC?
I have just done a run through of the procedure I described, and got to a function called Recovery Console (It asks whether you want to reinstall or do a repair or exit i think. I got upto the point where it asked me to confirm to "repair a windows installation and restore functionality" or something along those lines. I didn't go any further but looks straight forward and a good chance of sorting your problem. As far as your concerns for your data (im trying to be careful at what I recommend you do, i'd prefer not to be responsible for some sort of failure), I think, if you have a CD burner you make up a CD or two containing files you really can't be without. If you don't have a cd writer then:
1) You can do a clean install and lose your data settings
2) Decide its not worth the risk and live with XP as it is now
3) Backup or not backup and try recovery console
4) Try a registry mechanic (99% safe i reckon).
I used a program called ace utilities and its registry cleaner numerous times and it 'seemed' to speed up windows and found about 30 registry errors!!! (It got 97% thumbs up rating so can't be bad) Get it here, with 30 day free trial:
http://download.com.com/3000-2086-10224157.html
Let me know what you do. Cheers, Steve.