[imnoexpert]

Hi apologies for this being wordy,

I've got a newish Maxdata Intel Core Due, 500 GB HD, 2GB memory, used as an occasional office only PC. It came with XP Home installed, I've added XP Professional.
Both OS installations have decent AV and basic ZA, Spybot and regular online AV checks too. Both have Windows Update on full auto mode.
I hardly use XP Home, just boot into this to update/virus scan etc, XP Pro gets light use.
The system has not caused any trouble until a few weeks ago, when I noticed that my printers had vanished, and a couple of days later that Windows Update had stopped working. I ran my AV, SpyBot, Housecall, and nothing.
I have been getting email support from MS Support for Update and using their suggestions have tried several ways to get Windows Update going again, but no joy, and they have given up and referred me to Windows XP Support (which is pay for).
While trying to get WUpdate going and recover my printers, I've noticed that while trying all the diagnostics/repair attempts although I'm logging in as Administrator and not in Safe Mode, often I see system errors saying X can't be done while in safe mode, or the user doesn't have sufficient rights to do Y (although being logged in as Administrator). MS Support were not interested, I think because this department only dealt with Windows Update errors (and did you know you get free MS support for WUPdate issues?).
Anyhow, despite Googling all over the place, I resorted to attempting a repair install. I've got a recent backup (but not of the OS settings), and have restore points, but Restore tells me there are no changes every time I try and run a restore, so no joy there either).
I used the XP Pro install disk to try a repair installation. It recognised the existing profile, and ran through the procedure fine until the restart, it then shows a Windows XP Setup message window: "Windows XP Setup cannot run under Safemode. Setup will restart now."
And if you press the OK button, that is just what it does, and loops back to the same screen.
Any suggestions? I've tried interrupting startup, and when I see the Windows Startup options, if I select normal startup, I get the same Windows Setup error screen. Should I try last known OK setup from here? Is there any point going into Safe Mode (given the error message from Windows Setup)?
Cheers for any advice.