Desktop icons have blue box around text

Check to see if he enabled a high contrast theme in XP, right click on the desktop, go to properties and change the theme back to the default.

Shooter

Right click My Computer>Click the 'Advanced' Tab>Performance/Settings
 In the list make sure the 'Use drop shadows for icon labels on the desktop' has a check.

Also, check web item/linkDesktop/Properties>Desktop Tab>Customise Desktop>Web Tab, clear any entries here too.

I have done all of the above, the desktop icon text is still in a colored box.

In assuming it quite possibly is an infection, try downloading & updating Malwarebytes anti-Malware, from here:
http://www.malwarebytes.org/mbam.php

Tutorial, if required:
http://www.bleepingcomputer.com/forums/lofiversion/index.php/t169669.html

Run in normal mode.  
When installation has finished, ensure you leave both of these checked:
Update Malwarebytes' Anti-Malware
Launch Malwarebytes' Anti-Malware
Click Finish, and MBAM will automatically start.
Tutorial, if required:
http://www.bleepingcomputer.com/forums/lofiversion/index.php/t169669.html

If unresolved try Hitman Pro, a 2nd opinion scanner:
Hitman Pro http://www.surfright.nl/en/hitmanpro

Incidently if not already done, check the Visual Effects tab as explained in this MS article>
http://www.microsoft.com/resources/documentation/windows/xp/all/proddocs/en-us/display_change_visual_effects.mspx

Open 'System' in Control Panel.
Then Advanced tab > Performance > then click Settings.
On Visual Effects tab > click Custom.

Enable the checkbox that sets the background of the icon text to transparent.

When checking your visual Effects tab you may find an option which says "Let Windows handle this automatically", or words to that effect.  Ensure this option is checked.

If still unresolved, the following comments by a Microsoft MVP may be helpful ...
<quote>  Four things are required for transparent icon backgrounds:
 1.Control Panel-System-Advanced-Performance Settings.
Check "Use drop shadows for icon labels on the desktop" on the Visual
Effects tab.

2.Right-click on Desktop - "Arrange Icons by" and ensure Lock Web
items is cleared.

3.Transparency will not work if you have web content on your desktop,
Control Panel - Display Properties - Desktop tab - Customize Desktop -
Web tab. Clear all check boxes.
 
4. Ensure the Wallpaper is an image file not HTML.
<unquote>
Ref:
http://forum.soft32.com/win4/Drop-shadows-icon-labels-desktop-ftopict195676.html

There was an entry in the Customize Desktop > Web panel that I missed beofre.  Definately looked like malware put it there.  Once I deleted it, everything was fine.

Good.   ...but its still worth running a couple of Malware scanners if you haven't had the opportunity yet.   Thanks.

So the points should have come to me!