The article [Q300044] states that by default, System Restore is enabled on all hard-disk partitions upon the completion of Windows XP Home Edition and Windows XP Professional Setup. However, after installation of the operating system, System Restore is automatically suspended when there is less than 200 megabytes (MB) of free hard-disk space on the system drive but will automatically resumes at the next system idle time when 200 MB is available. The same behavior is expected after installation if any of the partitions become low on available hard-disk space. Additionally, if disk-space use encroaches on the data store size, with non-monitored files for example, System Restore always yields its data store space to the system because the data store size is not a reserved space and is always calculated as effective size. For example, if the data store size is configured to 500 MB, of which 200 MB is already used and the current free hard-disk space is only 150 MB, the effective size is 350 MB (200 + 150), not 500 MB. In other words, the data store size is always limited by the available free hard-disk space.
Note: Ensure System Restore is up and running (Computer Management, right-clicking My Computer, and select Manage). You click the service and you can see if the srservice is set to automatic and if it is set to restart, or if it's stopped or disabled. You can also check via the command prompt by typing net start which give a list of all the services running. Also make sure System Restore is enabled on all the drives wanted (System Restore tab under the System Properties).