ok well first I would try running the system with a restricted startup as a service / program could be causing the freeze. To do this in XP goto - Start - Run - type'msconfig'.
On the General Tab - change to selective Startup
First you could try unchecking 'Load startup items' this will stop all the items in start tab from running.
This is also the case with the services. On the services tab you have the option to hide microsoft services only leaving third party / added services. You could manually uncheck all of these. Using this procedure you could restart you system and then start re activiation options to tell if the problem occurs then at least you know whats causing it.
To fix the problem with internet explorer I would either make sure you have upgraded to version 7 + all updates or just use another browser such as firefox.
http://www.mozilla-europe.org/en/products/fire fox/