Black screen of death with cursor

My husband's laptop has the black screen of death (KSOD) with a white cursor that stays in the middle - and never completely boots into windows. All attempts to go into any of the other options via F8 (Safe Mode, Safe Mode with Networking, Safe Mode with Command Prompt, Enable with Boot Logging, Enable with VGA, Last Known Good Configuration, etc...) all produce the same result - KSOD with cursor. I have the CD for reinstallation of Windows XP Pro with SP2 and have used it to go into the Recovery Console. I have tried:

Chkdsk /r
Bootcfg /rebuild
Fixboot
Fixmbr

all with the same result. I have also copied registry files (service, security, software, sam and default) from windows/repair, in case it was a registry issue. No luck. I even went back and did a Repair Installation with the Windows CD (an upgrade only, not a full installation) with no luck. I have gone into the BIOS and put everything back in default - nothing. ****Though I did notice that the BIOS CLOCK is off time every time I've checked it out (i.e. it's 7pm and the clock would say 9pm or 10pm. It never had the correct time every single time I checked).****

I EVEN disconnected all USB items (mouse), removed the battery, pressed the power on button, and put the battery back in.

I've been trying to fix this laptop since last week and I'm totally out of options.

A little background on the computer - and what's been happening:

Purchased in 2006 (yes, it's old...)
Dell Inspiron B130
Intel Celeron Processor M 370, 1.5 Ghz
2GB dual memory
40 GB HD
Windows XP Pro SP2 (actually it was running SP3 until I reinstalled windows)
Antivirus program - Norton Symantics
Also has SpyDoc and Malwarebyte's AntiMalware programs

Back in April, my husband got a computer virus (a trojan actually - I think it was W32 NIGEL but can't recall for sure) from a website. It installed some program called AVSuite which I eventually found and deleted. The computer was cleaned out and all was well.

One month later, he got another virus - THE SAME ONE - from the SAME site (he didn't learn the first time). I went through all the steps to remove it and cleaned out the computer. But over the next few months, I noticed that the Taskbar at the bottom of the screen would not boot up correctly. Sometimes I even had to go into the Task Manager and stop the explorer.exe process, then run a new one in order for it to come up. Sometimes it wouldn't come up at all and I would have to completely shut down the computer and reboot. In the past few weeks or so it had gotten worse, to the point where my husband would turn on the laptop and let it just sit at the USER screen for about 20 minutes or so, then log into his USER. I had already done virus checks, malware checks, spyware checks - all with negative results (other than minor tracking cookies issues), but I knew something was wrong, just couldn't seem to figure out what it was.

So that morning we used the laptop to pull up a website - there was nothing special about it and the laptop was running fine. That night - it was no longer booting up, only that KSOD with the cursor problem showed up.

My husband would really like to get in and retrieve his documents - then maybe a total wipe and reinstall would make it like new.

One last thing, in searching through google for a solution to the problem, I noticed one person had made a comment about a really strong virus that causes some issues in Windows Vista and 7, but said that the effects of the virus on Windows XP were different - would cause the Task Bar to disappear, cause typing/keyboard issues, and cause problems opening Microsoft documents (all problems which we had experienced, including the sudden inability to open Windows Excel). His solution was to remove the hard drive and clean it out on a different computer. Unfortunately, the laptop doesn't provide an easy way to do that...

Anyway, any help, guidance or assistance you can provide would be SO VERY MUCH APPRECIATED! Thanks so much!