Here is the solution to the logon - logoff issue in Windows XP.
Enter the Recovery Console
Boot the system using the Windows XP CD-ROM. In the first screen when the Setup begins, read the instructions press "R" (in the first screen) enter the Recovery Console. Type-in the built-in Administrator password to enter the Console. You'll see the prompt reading C:\Windows (Or any other drive-letter where you've installed XP)
Type the following command and press Enter.
(If that does not work, try CHDIR SYSTEM32)
COPY USERINIT.EXE WSAUPDATER.EXE
Quit Recovery Console by typing EXIT and restart Windows.
You'll be able to login successfully as you've created the wsaupdater.exe file (now, a copy of userinit.exe)
Now, change the USERINIT value in the registry (see Phase II in this page) and change it accordingly.
Phase II - Fixing a registry entry which causes the Quick Launch issue (not retaining the settings)
Click Start, Run and type REGEDIT. Navigate to:
HKEY_LOCAL_MACHINE \ SOFTWARE \ Microsoft \ WindowsNT \ CurrentVersion \ Winlogon
In the right-pane, change the value of Userinit to "C:\WINDOWS\system32\userinit.exe,"
Type the above value exactly as given, including the comma - exclude the quotes. Also, change the path to userinit.exe appropriately if Windows is installed in a different drive.
Close Registry Editor and restart Windows.
NOTE If you don't have a Windows XP CD-ROM, you need to use Windows XP Setup floppy disks to enter the Recovery Console.