Saw this solution mentioned on several different boards concerning blank desktop. Vista and XP:
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No desktop, because...
c:\windows\explorer.exe would not run
It is visible from the command window, via browse, etc
It cannot be moved, renamed, or executed, by any utility
I found this fix at:
http://www.aurcity.com/compdocs/solutionsarchive.asp
All I did was delete the registry entry:
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\Image File Execution.options\explorer.exe
The exact procedure (note, you can do this even though there is no desktop)
1. CTRL-Alt-Del to bring up Task Manager.
2. Click File | New Task(run).
3. Type regedit in the Run box and click OK.
4. Browse to the following registry key:
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\Image File Execution.options
5. Under this key there will be subkeys named explorer.exe and iexplorer.exe. Delete the explorer and iexplorer keys entirely. They should not be listed under the Image File Execution.Options key.
6. Close the Registry Editor.
7. Restart the computer.
That was all it took! I did this on a Vista system. The "Windows NT" entry in the registry is correct, even though it is a Vista computer. Note that these instructions were posted in 2005, two years before Vista was released, but they worked for me.
Now I'll be doing a thorough Virus/Spyware/Malware cleanup.