Cannot run any exe/com program in cmd window (Windows XP)

Hi

Any program with exe/com extention does not run from a
cmd line, even thus it is in the path. However, if I
write the program name WITH THE EXTENTION (e.g.,
cmd.exe), it does run. Yes, it is very odd. Here is an
example:

C:\WINDOWS\system32>cmd
'cmd' is not recognized as an internal or external
command, operable program or batch file.

C:\WINDOWS\system32>cmd.exe
Microsoft Windows XP [Version 5.1.2600]
(C) Copyright 1985-2001 Microsoft Corp.

C:\WINDOWS\system32>

I checked related article (310585)
regarding "files32.vxd" however this does not seem to be
the case here.

Regards,
Arnon