This is a pretty common occurance with Windows since Windows activation was first introduced in Windows XP and is caused by a missing or corrupted oembios.bin file. The main culprits? A nasty virus infection, or a dying hard disk. Simply restore the file from the original copy that's in your Windows CD to fix it. Here's how I went about doing it.
Boot using Windows CD, then press 'R' for Recovery Console on the first screen. Login to your Windows installation and enter your administrator password as necessary. Do the following:
:\> expand drive:\i386\oembios.bi_ c:\windows\system32
Replace drive with the appropriate drive letter (usually D). You should get a message saying 1 file(s) copied. Exit the Recovery Console and reboot into Windows and all should be well.
Be sure to do run a diagnostic check on your hard disk followed by a thorough virus check afterwards.
Sysinternals Forums - XP activation loop