Thanks for your replies - I'm now a happy bunny again after getting it sorted out
I'm using Norton Internet 2005 which has a firewall but since I couldn't use the Live Update function of that either I didn't think that can be the problem - would it change settings that would make it impossible to connect to its own server....(see below for more details!)?
I reset the IE security settings to default but this didn't help. I didn't think it's an IE problem because I couldn't browse properly with Mozilla or Opera either.
So, if it's not IE and I can't update either Norton or XP because I can't get onto the pages that will let me do that, I felt a bit stuck. I tried the Winsock repair which went smoothly but didn't help so I went back to the Norton firewall.
After going to firewall->configure-> programs and scrolling down the list of programs I noticed that Microsoft Host for win32 services was blocked. I switched this to automatic and BINGO! problem solved. I have now updated XP and Norton and all is well with the world!
Thanks again for your help,