XP tries to load hardware when programs launched

Hello!
Whenever I start a program like Outook, Word, IE, new window in IE etc., the add hardware icon shows up in my toolbar and stops all input (keyboard, mouse etc.)
In addition there is a small blue square (about 1.5 milimeters square) that appears in the top left corner of my monitor and moves at 3 second intervals from the lop left corner towards the middle of the screen at 1 inch increments 3 times then returns to the start point and does it again. Sometimes it only moves to 5 spots and sometimes more. The entire episode lasts between 15 and 45 seconds but might happen back to back in the same program.
It sounds trivial but it is driving me crazy.
I have ran Norton, Spybot, Hijack, Adaware ... no luck.
I have tried to watch what it is trying to load from "Processes" in the task manager and nothing shows up as launching or running.

Anybody got any ideas?

Steve