If Last Known Good Configuration worked it means your registry was corrupted, or altered which can and does happen. You may have made changes to the registry using Hijack This.
From Petri Co.il
The "Last Known Good configuration" is one of the available startup options in Windows NT 4.0, Windows 2000, Windows XP and Windows Server 2003. It starts the computer by using the registry information and drivers that Windows saved at the last shutdown. Any changes made since the last successful startup will be lost.
The Last Known Good Configuration startup option allows you to recover from a problem by reversing driver and registry changes made since you last started Windows XP/2000/2003. Windows does not update Last Known Good Configuration information in the registry until the operating system successfully restarts in normal mode and a user logs on and is authenticated.http://www.petri.co.il/last_known_good_in_...000_xp_2003.htm
You need to backup your registry so you will have a working copy should that happen again and LKGC doesn't work, and you may want to perform some scans to make sure that registry keys that may have been resulting from malware were not reinstalled.
A good utility for creating backups of the registry is ERUNT which can be downloaded here:http://www.snapfiles.com/get/erunt.html