I think it will help against some spyware, but not the ones that are programmed to take advantage of the security flaws in IE.
If the exploits are designed to run with the user's privilege level, such as Bofra, then it will make a difference what class of user it is. Keep the computer(s) patched to minimize the easy targets. A modern antivirus software is still recommended for backup.
If you're wanting an antivirus recommendation, my first pick for that scenario would probably be Norton Antivirus 2005 because it has a fair amount of spyware/adware detection and its interface can be set up for "silently delete" AND password-protected so people can't turn Norton off or detune it. If you get NAV2005 then here are my suggestions:
1) for a WinXP system, re-enable the Windows Firewall after installing NAV2005
2) set it to scan within compressed files
3) set it to use maximum heuristics
4) go through every panel and set all of them to the "auto-clean then silently delete" approach so the user never gets to override the protection.