It sounds like explorer.exe may be corrupt. Only a guess as this blinking cursor is sometimes what I get when I fudge a explorer hack.
Try getting into MS-DOS Mode and type scanreg /restore. You will have 5 backup dates to select from. (One hidden at the bottom) Select the date that would be most likely previous to the problem and follow the prompts.
Or
She could have a virus. Download Stinger onto a floppy and run it in Safe Mode.
http://vil.nai.com/vil/stinger/
If all fails, re-install. Don't forget to save any personal files she may have on her HDD. Make a copy of her addressbook. See if she has Favorites to save.
Cheers!