C:\Documents and Settings\username folder keeps opening at startup

Have you checked here
C:\Documents and Settings\username\Start Menu\Programs\Startup

When you say you checked msconfig, what did you do?  Have you tried disabling all of your startup items?

Frequently, folders appear when there's an entry that needs quotes around the path.

Open any windows explorer window.
To to tools, Folder options.
Click on the view tab.
Uncheck Restore previous folder windows at logon. Apply.
Click ok.
Reboot.
It should be fine

Also, send us your HijackThis (http://www.trendsecure.com/portal/en-US/tools/security_tools/hijackthis) or your Autoruns (http://www.microsoft.com/technet/sysinternals/Utilities/AutoRuns.mspx) log.

This is caused if one of the startup entries are not formatted correctly in the registry.

Download Startup Tracker application from this page:
http://www.dougknox.com/xp/utils/xp_starttrack.htm

Launch the program, and click the "View log" button. Post the contents of the log file here.

Note: No need to post the following sections:

-- Running Processes --
-- Running Services --

Use the following articles as examples:
http://windowsxp.mvps.org/stfolder.htm 
http://windowsxp.mvps.org/dellfolder.htm 

11/21/2007  3:25:05 PM
 
-- Registry --
HKEY_LOCAL_MACHINE\Software\Microsoft\Windows\CurrentVersion\RunOnce

No Items Found

-- Registry --
HKEY_LOCAL_MACHINE\Software\Microsoft\Windows\CurrentVersion\Run

ehTray                        C:\WINDOWS\ehome\ehtray.exe
NvMediaCenter                 RUNDLL32.EXE C:\WINDOWS\system32\NvMcTray.dll,NvTaskbarInit
nwiz                          nwiz.exe /installquiet /nodetect
RecGuard                      C:\Windows\SMINST\RecGuard.exe
High Definition Audio PropertyCHDAudPropShortcut.exe
SynTPEnh                      C:\Program Files\Synaptics\SynTP\SynTPEnh.exe
SunJavaUpdateSched            "C:\Program Files\Java\jre1.6.0_02\bin\jusched.exe"
hpWirelessAssistant           C:\Program Files\hpq\HP Wireless Assistant\HP Wireless Assistant.exe
eabconfg.cpl                  C:\Program Files\HPQ\Quick Launch Buttons\EabServr.exe /Start
Cpqset                        C:\Program Files\HPQ\Default Settings\cpqset.exe
NvCplDaemon                   RUNDLL32.EXE C:\WINDOWS\system32\NvCpl.dll,NvStartup
Syslog                        C:\crsvc.exe
HP Software Update            C:\Program Files\Hp\HP Software Update\HPWuSchd2.exe
NeroFilterCheck               C:\Program Files\Common Files\Ahead\Lib\NeroCheck.exe
ClamWin                       "C:\Program Files\ClamWin\bin\ClamTray.exe" --logon
LVCOMSX                       C:\WINDOWS\system32\LVCOMSX.EXE
iTunesHelper                  "C:\Program Files\iTunes\iTunesHelper.exe"
MSConfig                      C:\WINDOWS\PCHealth\HelpCtr\Binaries\MSConfig.exe /auto
KernelFaultCheck              

-- Registry --
HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\RunOnce

No Items Found

-- Registry --
HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Run

ctfmon.exe                    C:\WINDOWS\system32\ctfmon.exe
BgMonitor_{79662E04-7C6C-4d9f-"C:\Program Files\Common Files\Ahead\Lib\NMBgMonitor.exe"

-- Registry --
HKEY_USERS\.DEFAULT\Software\Microsoft\Windows\CurrentVersion\RunOnce

No Items Found

-- Start Menu - Current User --
No Items Found

-- Start Menu - All Users --
No Items Found

-- Disabled Items --
Democracy
FlashGet
ManifestEngine
ISStart
LogiTray
MSKDetct
QPService
QTTask
Skype
StxMenuMgr
AutoBackup Launcher

-- Registry - Shell Value - HKLM\SOFTWARE\Microsoft\Windows NT\CurrentVersion\Winlogon --
Explorer.exe

bsharath:

the folder was empty

scadieux:
the option was already unchecked

Interesting issue! I find no reference to "Documents and Settings" folder in the startup log.

I forgot to mention that this started to happend when I installed a seagate external harddrive...