As I suspected, this appears to be a Windows XP problem, and may be with a service pack according to what I found doing a google search for the problem.  One suggested fix is to run Windows XP "Repair".  HERE is the repair procedure from Microsoft.

From one post:

"just sorted this problem heres how its not a memory problem..its windows update sevice pack, using system restore with erd will not work,nor chkdsk in recovery console you have to run windows over the top,choose repair ,then reactivate and away you go with nothing lost this was on a newish dell"

Thanks for your help - I have now sorted the problem. I was unable to use the repair procedure because I don't  have an XP CD and Dell's system restore looked a bit drastic. BUT your mention of Service pack gave me a Clue. the Solution was as follows.

Step 1 - Using Add/Remove Programs, remove Windows XP Service Pack 3 (SP3)

Step 2 - Restart at the prompt and when rebooted wait while IE explorer throws a wobbly and then realise it has backtracked to Version 6 (was 7)

Step 3 - Kill off multiple instances of IE, then re-install IE Version 7

Step 4 - Restart at the prompt, after reboot plug in Freecom Hard Drive and Hey presto !! all is now working fine.

Thanks for your help

Good information but it appears I'll have to reinstall my OS and everything else...no way to get past the blue screen of death....