WinXP SP3 runaway service

[RMSe17]

I am working on my friend's computer, which had some spyware on it at some point. After getting rid of that spyware I was told that the computer could not use the internet, and was asked to fix it. When I got the computer, it connected to the internet just fine, infact, other than having a bunch of silly programs on it and missing SP3 and half a million of windows updates the computer seemed fine. I removed some silly programs, and went ahead and updated to SP3. Now when booting up the computer, services.exe kicks into overdrive, takes 90% of CPU (whatever is not used by other things) and starts eating RAM. After consuming the 1GB of physical RAM, it climbs into virtual memory, and consumes all of virtual ram, totally 2.1GB. Eventually, about 10 minutes later, it stops whatever it was so busily doing and frees up the processor. Couple minutes after, the ram gets freed up as well, and the computer becomes usable again.

This does not happen in safe mode... I am using process explorer, but I can not figure out how to see which service is doing this...

Is there a way to see which service is grabbing all the CPU and RAM?

P.S. When I uninstalled SP3, the problem went away. When I reinstalled SP3, problem reappeared. I don't really want to leave it in SP2 state, cause it is less secure, etc... but SP3 state is just not unusable.

Any ideas?
RMSe17

 

[Billb2]

Event Viewer have anything to say?

 

[RMSe17]

Nothing that looks ridiculously abnormal.. Some DCOM failed to respond, that's about the only error.

I did isolate the thread which does the problem in process explorer it is: services.exe+0xbf63
if I suspend that thread, the memory consumption pauses and the processor goes to idle. If I kill the thread, the memory gets released eventually, and the system still running. Still have no idea what it is.