I can't move or copying anything from one place to another - desktop to recycle bin, pictures to CD etc. Grateful for any help.

Hello, and Welcome to D-A-L.

Sounds like an Explorer(.exe) associated problem.

Have you just recently installed any new programs or hardware/drivers?

If this has just started (on its own, out of the blue) try a System Restore.
Start, All Programs, Accessories, System Tools, System Restore. Pick a date which preceeds the problem.

If this doesn't work you can try the System File Checker utility.
Start, Run, type in sfc /scannow. You will probably need your XP CD. The caveat with this method is you may have to reinstall some updates and possibly SP2 in the extreme case.

Post back with your results and any further questions.