For spyware I would suggest a couple of things.
It doesn't hurt to use more than 1 antispyware program.
I use Spybot S&D, Adaware Personal SE (
http://www.lavasoftusa.com/software/adaware/) and Microsoft Defender (
www.microsoft.com/spyware).
The problem is, once you get spyware, it is really hard to remove. It can leave bits of itself behind, and can damage system files when you try to remove it. The best thing to do is scan with a number of antispyware programs, try removing it with these programs, but if that doesn't work, google for manual removal tools or instructions. (ie use the antispyware program to identify your spyware, then google the name +removal).
Unfortunately, if you have a fair bit of spyware, often the only way to be sure that it is all gone and that your system isn't too damaged by its removal is to reinstall windows. It can take ages to manually remove some of this stuff if you have a number of spyware files on your system. Its a real pain in the arse. Make sure you backup your data before doing this as you will have to reformat your hard drive if you reinstall.
Other things - use Firefox instead of Internet Explorer (
www.getfirefox.com). A better browser that isn't as open to attacks as IE. That alone will prevent a lot of spyware.
And make sure you have automatic updating on for Windows XP - they release security patches every month.
As for your optical drives, it is hard to tell - can you boot from the optical drive (is BIOS set to boot from an optical drive before the hard drive)? If BIOS is set like this, put a bootable disc in (eg original Windows XP CDROM or a linux disc) and see if it boots. This will bypass starting Windows and if it works ok, then the problem is in Windows not hardware.