Resolved windows xp pro hangs at wallpaper after removing trojans with AVG

I am fixing a laptop for my friend. Its a Dell Latitude 131L with Windows XP Pro. It came to me with a rogue spyware removal tool, and it was having trouble accessing the Internet from IE.. so I installed AVG Free 8.5. It found 15 trojans, malware and the like. It seemed to remove all 15. However, when I shutdown the computer and boot it back up, and it just stops at the wallpaper.

When I boot in safe mode, it gives me a menu of users to choose. I click on either Adminstrator or Wendy (the two users). Both auto-logoff windows and go back to the user menu. This happens even when I try to load safemode with command prompt.

Do you know the best way to go about fixing this computer, seeing as I cannot even get to a command prompt. For some reason, the computer does not have a windows CD with it...

 

Thanks! It worked like a charm!
Blessings to you always!

Don