If you start-up in safe mode (hit f8 while windows is starting up, I just keep tapping f8 once i turn my pc on) Then hopefully you can logon in safe-mode..then follow the steps below this will help you de-activate windows, then you can phone microsoft and they can give you an activation key over the phone, hopefully once you register this way it will allow you to logon and windows will stop asking you to activate windows..

1. Click on Start and then Run.
2. In the text box in the Run window, type regedit and click OK. This will open the Registry Editor program.
3. Locate the HKEY_LOCAL_MACHINE folder under My Computer and click on the (+) sign next the folder name to expand the folder.
4. Continue to expand folders until you reach the HKEY_LOCAL_MACHINE\Software\Microsoft\WindowsNT\Cu rrent Version\WPAEvents registry key.
5. Click on the WPAEvents folder.
6. In the results that appear in the window on the right, locate OOBETimer.
7. Right-click on the OOBETimer entry and choose Modify from the resulting menu.
8. Change at least one digit in the Value data text box and click OK. This will deactivate Windows XP.
9. Click on Start and then Run.
10. In the text box in the Run window, type the following command and click OK.
    %systemroot%\system32\oobe\msoobe.exe /a
11. When the Windows Product Activation window appears, choose Yes, I want to telephone a customer service representative to activate Windows and then click Next

Info taken from : Change the Windows XP Key - How To Change the Windows XP Product Key Code

Maybe when you phone microsoft for the activation code you could let them know that it is asking you to activate when you already have and that it won't let you logon..Hope this helps...Dave