To close out this thread and maybe to help others....
The problem was MCAFFEE VirusScan.
I uninstalled/reinstalled and no more problem.
I feel sorry for whoever else gets a problem like this....
and thanks to anyone who posted
Jan 24/01/07 Thankyou so much for this information, I have spent 2 hours troubleshooting BSOD, tried system restore, msconfig, diagnostic startup, but still would not boot (only in safe mode). Uninstalled MCAFEE internet security suite 2006 and hey presto - It booted. Now reinstalled MCAFEE (had to start mcafee items in services.msc manually). And all back to normal. Still took 4 hours but would have been much longer without your advice - THANKS!