Well, I've changed a lot of things in the last few days. About a week ago my last XP installation became irretrevable so I decided to do an installation on a 4Gig drive, add my favorite apps and image the entire disk as a backup. It seems like there's a conflict now between some part of WMP and my modem and I can't really tell at what stage it first appeared but my best guess is that XPY settings caused it.
The image shows the settings available for WMP and I think I selected almost all of them. There's also a setting there to uninstall WMP there so a complete reinstall of it will be the next step.
Edit: Something called a loopback device has also installed. I don't remember it from previous instalations and it doesn't seem to be a virus or rootkit so I've left it there. Thought it may be worth mentioning also.