You said you are using Windows XP, right?
Did you do a default installation? My preferences.txt ended up in C:\Documents and Settings\Dave\Application Settings\Arduino
(But I have no idea how it got there. I just unzipped arduino-0018.zip in a "sandbox" directory and started it up.)
I rarely use Windows for anything useful these days (I just use it to test various "cross-platform" distributions for some colleagues), and I don't know if there are other things that people should know.
What are the default.window values in your preferences.txt? What size does the Arduino window open with? What are your Windows screen resolution settings?
Did you exit from all Arduino IDE processes and edit the default.window lines in preferences.txt and then restart Arduino?
Beyond that, I'm afraid that I have nothing further to offer.
Regards,
Dave