I did a fresh install of XP a few months ago on a new drive plus a supposedly clean old drive. For whatever reason, XP decided to install some of the startup files on the old drive and the rest on the new (maybe the old ones weren't completely wiped?). That gave similar symptoms. I just removed the old (small drive). Put it in permanent storage. Formatted the new drive again, then installed a second, really new drive for the backup. Install went normally, so far as I know.
As for locking up, I have noticed the same thing with Word as well, after the fresh install. I am using Word 2002 SP3. It seems worse if I fire it up and then try to do something right away, like auto-adding the date. It's more than a bit aggravating. My work-around
is to start the body of the document first, then go back and add the date, etc. In my case, it is Word that locks up, not Windows itself.
Don't know if that helps, but I feel your pain. John