First off:
I'm not sure if this should be in the software or hardware problem, but it relates to my videocard so I hope its supposed to go here!

System Specs:
- ASUS M3A motherboard
- ATI Sapphire 3870 HD
- AMD Phenom 9850
- 500W power supply
- Windows XP

I have two problems which I think are related:
1. upon bootup, my desktop loads the bios fine, but when it gets to the windows XP screen with the little blue bar scrolling on the bottom, it will occassionally freeze. The only way to solve the problem is to turn off the power in the back, and restart. Doesn't always work, may require multiple restarts. Sometimes, it will load, but it seems sluggish, looking the cpu usage (i.e. by pressing ctrl alt del) shows between 1-3 processors processing at near 100%, but the system itself is idle. I ususally restart it until, and make sure the processors are all acting normally.

2. the videocard driver crashes when I play games. I will get the VPU recover telling me the driver stopped responding and has been reset.

I read somewhere that this might be due to the card overheating, but I checking the Catalyst control center, the card is only running at 58 degrees, so that seems unlikely.

I've tried updating to the newest ATI drivers a couple months ago (last time I turned the desktop on), but that didn't seem to help.

Any suggestions?

You said your CPU usage is 100% even when it is idle, did you do something about it? This maybe a virus running in the background.
If GPU is ok then it might be your CPU. Try checking the tempratures in the BIOS. As the CPU needs multiple restarts, i doubt it might a CPU overheating.