|Defrag can't hurt but it won't help here.|
If it only happened a few days ago then try a restore point.
Not even sure what is running that is causing this error. http://support.microsoft.com/kb/145799
Worse comes to worse you may end up reloading it to OEM state. Get a good security suite on it and be sure to keep all MS updates on. Use a standard or limited user account at all times.
Hang up and live.