Hi Joy,
Stop and restart the System Restore service. You will lose all existing
restore points, but as it's not currently working they are not going to do
you any good at this point. Start/run services.msc, locate the SR service
and doubleclick it. Click the stop button, then set the startup type
dropdown to disabled. Click apply/ok, then reboot.
Then, check the "System Volume Information folder" on each drive (you may
need to set folder options/view tab to see hidden and system folders for
this) and delete any contents. Reverse the steps to restart it.
If this does not help, follow these steps to reinstall System Restore:
Go to the Control Panel/Folder Options/View tab, set it to "Show hidden
files and folders" and "Show the contents of system folders", then uncheck
"Hide protected operating system files [recommended]". Also uncheck "Hide
extensions for known file types".
Then, open Windows Explorer from Start/All Programs and go to the
C:\Windows\Inf folder. Locate the sr.inf file, right-click it and choose
install.
You may need to either insert your WinXP CD or know where your I386 folder
is located on the hard drive. You may also need to know where the
\ServicePackFiles folder is (usually under the Windows directory).
--
Best of Luck,
Rick Rogers, aka "Nutcase" - Microsoft MVP
Associate Expert - WindowsXP Expert Zone
Windows help - 
www.rickrogers.org