In the admin mode, when i create new users, it doesnt give an error message.
(whether the new user is limited user or admin, it doesnt matter) but when i go to the login screen,and select the new user to login, it says I cannot log in as Windoes cannot find the file specified.

What might be the problem?

This reply from Kelly's Korner addresses these issues:

Logon to another account with admin privilege and run System Restore.
Choose the most recent restore point and SR should restore the user
hives.


Or...


Boot into safe mode and log in as Administrator. Copy ntuser.dat from
%windir%\repair to "Documents and Settings\[your user id]". Now do a system
restore to a point in time prior to when the corruption message began to
appear.


Or...


Relocate NTUserdat


Look in HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows
NT\CurrentVersion\ProfileList and find the profile you want to change
and then change ProfileImagePath to the ntuser.dat folder that you want to
use. You must manually copy or move the ntuser.dat file there.


Create a New User or Restore the User Profile
http://support.microsoft.com/default...;en-us;Q318011

Corrupt Hive
http://www.kellys-korner-xp.com/xp_sys32.htm

How to Recover from a Corrupted Registry
http://support.microsoft.com/default...;en-us;Q307545