Hi,

I found the solution.

The reason that the system hangs when I try to activate is that the slipstreamed SP3 disk had an old version of IE. When the repair install occurs, it basically screws the IE8 installation on the system. This prevents the activation wizard from working.

That's great! How did you find it????

Well I had abandoned the idea of fixing the XP installation that had me start this thread, but then I had the same issue when fixing a PC for my uncle. I thought that it was too much of a coincidence and that there must be something wrong with what I was doing.

I can't remember exactly what I searched for but I found some mention of there being no IE support in an article about slipstreaming XP disks. This directed me to some software called nLite. The IE8 addon is not supported by Microsoft, but recent versions of nLite will support it. (I didn't actually need to go through the repair process again though). Windows seemed to let me log in if I chose safe mode without networking. I copied the IE8 install onto a USB stick and proceeded to install it. I was pleasantly suprised that it installed fine and then upon reboot the activation wizard worked.

Thank you. I wonder now if you could have postponed activation and simply did a Windows Update to get IE8 or if that would not work.