So I've managed to recover the files.
First I ran a virus check (sophos) which found a Trojan (Rootkit-FP) which was causing my problems, so I have removed that. The data files were all fine, so I have copied them across.
I am tempted now to reformat the disk and reinstall windows. My problem is I don't have the disks (it came installed on the laptop - Novatech). Obviously I have a licence (Windows XP Home), but no media. So does anyone have any spare media I could borrow? (would this be a retail or OEM version?)
Also, I'm concerned that after installing, and connecting to the internet, that I could get hacked again. What is the best way to prepare the laptop before I connect it?