Computer messed up when accessing CD\DVD drives

I don’t know whether I have a virus, malware, or some other infestation on my computer. Here are some of the symptoms:

Problems occur only when I attempt to use any normal IDE internal CD\DVD drive or any external USB/Firewire CD/DVD drive. Once a CD\DVD drive is accessed (I insert a regular audio CD, blank CD/DVD. or any other kind of CD or DVD into any of the drives), I cannot run any program or application. The following are examples of some of the errors that occur:

  “The application failed to initialize properly…”.
  “Not enough quota is available to process the command.”…
  “The application or DLL is not a valid Windows image.”. 

Other errors automatically start popping up for running processes (ipoint, etc.). Also, the display on the monitor is all messed up. Windows boxes, screens, and dropdown lists are transparent, that is, you can see through them. Buttons in Windows boxes and dropdowns are blank. For example, where you would normally see “Exit” or “Cancel” inside the buttons, now it is blank. When I shut down the PC, instead of seeing the normal full screen “Windows XP – Windows is shutting down” message, now it displays a small box with “Windows Media Center – Windows is shutting down” message. 

I want to reiterate that if I do not attempt to use any of the CD\DVD drives, everything works fine. No problems whatsoever. I can run any application and everything is fine. 

My PC is an “HP Media Center Pavilion PC” running “Windows Media Center Edition 2005” with SP3. I am running “Norton Internet Security 2005 – Antispyware Edition” with latest updates. 

This problem started to occur around July 2009. I have restored backup archives (“Acronis True Image”) from February 2009, April 2009, and June 2009 and this problem still occurs. I know for a fact that I did not have this problem as recently as June 2009 because I had used my CD/DVD drives at that time without a problem. I even restored the MBR from an old backup archive thinking that maybe a virus infested the MBR sometime between June and July. This did not solve the problem. It is not a problem with the drives because I am able to boot from CDs without a problem.  

I am at the point now that I am thinking about doing a complete “system recovery” from the DVDs that were created when I first setup my system back in 2005. I would like to avoid this if at all possible.  

Can someone please help?

Thanks in advance.