Gosh this sounds like an exact problem i had. I was in your exact situation a few years ago. Everything was working fine and then one morning, i tried booting up the system and it kept restarting. Exactly as you said, the blue desktop would show for about 2 seconds and then it would restart and go right back to the bios flash screen and do the same thing over and over again. I tried everything i could, (f8 safe mode, last known good configuration, reset bios settings, etc) but nothing worked. I even called up tech support and they suggested the best option was to reformat my computer. He told me to bring the hard drive to any local computer shop and tell them to make a backup image of all the data on my hd onto a dvd that way all my data was saved and then format the computer. I was very hesitant but finally i decided what the heck, i had no important information on my comp anyway so i just formatted the whole damn thing. After that, i reinstalled winxp and everything worked fine.
So i'd suggest that if all else fails, formatting could be your last resort.