Do I understand correctly that pressing F1 from the Windows desktop fails to bring up the Windows system help? If so, this is a system problem. You might have to do a repair install of Windows. If you do that, and the XP CD is older than your current service pack, you'll need to reinstall the latest service pack.
I've never tried this, but you didn't attempt to uninstall Internet Explorer by any chance, did you? The Windows HTML help needs IE in order to work. Idiotic design, but that's the way it is.