Follow Up:

I am using the latest Catalyst drivers from ATI.

I have tested on an earlier system image before the ATI drivers were installed and there is no problem with the bog-standard default VGA driver that comes with XP (though no full featured effects either).

Looks like it doesn't like the latest Catalyst drivers for some reason.  Or perhaps the per pixel skinning engine (which is presumably not available with the standard VGA driver) is trying to load Windows XP as if it is a WB skin?

Also: Fiddling with the check boxes to disable per pixel and fix titlebar corruption does not fix the problem, although the titlebar checkbox seems to make the problem delay one change of skin (2 changes and you're out).  However, switching that on prevents windows being drawn properly for open windows (right hand side of window missing, titlebar over edge by a centimeter or so).

It's the latest paid version brought down by the latest version of SDC.

Another workaround: Unload WindowBlinds, then select Windows XP Theme.  Perhaps WB is simply not unloading itself when default Windows themes are selected?

This is the way I have always done it.

If I am not mistaken, WB 5 uses ".dll" files to apply the skins, versus the older 4.x version using "wbload.exe". This may be creating some sort of issue with the "uxtheme.dll" file reloading on your machine.

I have also found that the Catalyst 5.9 version driver is the most stable "current" version in conjunction with my X700 Pro card.

Just some input.

Thanks for that tip - I'll try it cautiously and see.  Usually I'm reluctant to use prerelease software, for obvious reasons.

I have another clue which may help the diagnosis:

If I import a Windows XP style and convert it to WB format with Skin Studio (eg: Luna or Royale), then after loading that theme in WB5, I can switch to the built-in Luna without lockup, except that for some reason menu items in applications have white patches around them.

This implies that there is a difference between imported/converted msstyles and the typical WB themes out there that triggers the problem.