I'm sorry for reviving this thread, but I found the ACTUAL solution to this problem, as opposed to just reinstalling Windows. Since this thread comes up near the top of Google results for this issue, I think it can actually help people.
The answer is to open the registry editor (press Start and type regedit) and check the registry location below for a key called 'Shell'. For people experiencing this problem the key is there and it has a value of %comspec%. For people with healthy systems, that key isn't there. So simply delete the key and reboot!
HKEY_CURRENT_USER\Software\Microsoft\Windows NT\CurrentVersion\Winlogon
There is also a 'Shell' key in the registry location below, and that one SHOULD be there, and its values SHOULD be explorer.exe.
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\Winlogon
I hope this helps someone some day, and saves them the headache of having to reinstall/reset/refresh Windows.