Ok, I had the same problem, my computer is running just fine, but when I try to sign on to internet explorer, the computer pauses and does absolutely nothing leaving me on my desktop where I started. I tried going to my control panel, and my computer would not let me enter or view my internet connections. After many hours of reading and playing with my lovely computer here is what worked for me:
Go to start menu, click on control panel, click on add or remove programs, search for the file named "Windows XP Service Pack 3", and remove the file. It will take a while but remove the whole file, reboot your computer and believe it or not you can sign on to the internet. Once you sign on to the internet you should go to Microsoft Updates and Install the High priority updates, reboot, go back to Microsoft Updates and once again Install the High Priority updates the second time this will include the Windows XP Service Pack 3, reinstall it, and be sure to go back to Microsoft Updates a third time, yeah I know this took me hours to do, but I can use my Internet Explorer.
What I think is happening to a lot of us is that when the computer originally went to update Windows XP Service Pack 3, somehow it never fully completed the update; leaving my computer and myself totally confused.
Good Luck, I hope this works for a lot of us lost Internet Explorer Users!!!