glad system restore worked for you.
when you install Windows XP, it allows you to reinstall with or without formatting your HD. If you chose to format, you'll lose everything on your HD. There're ways to recovered formated drive but it's a pain.
Btw, system restored only restored system state and core files. The spyware files are might be in your system. Go download MS Defender
http://www.microsoft.com/defender. It's quite good.
For internet browser, try to use Mozila browser such as Firefox. It helps to keep spyware away from your PC.
Internet Explorer(IE) has direct scripting connected to your OS so, it can be easily attack.