Just started playing with it myself...with laptops and remote users...as a quick reset of the system....As for the system restore, I have no idea if it was on or off to be honest, I've never used that particular feature of XP.
Here is more info on it
Malware tends to hide in there too...so you shut it down and scan in safe mode.
Then you can re-enable once you feel the machine is clean...you can also create a restore point.
thats part of my job too.......And I do know what ya mean! I break software for a living actually...
welcome to AO
Good to hear your system is all fixed.........and ready to break again