Windows 7 user account creation issue

I am having an issue where I can't create any new user accounts on this windows 7 notebook. It had 2 accounts on it, but I can only login to one with admin rights. The other was working fine, but now doesn't. I don't even see it in the user accounts list. I decided to delete it manually, in the advanced properties, user profile area. That went fine. I went to registry and the SID is gone too. I rebooted and the icon still appears on the desktop, but the account is gone.
I logged back in as Admin and tried to create a new user account. All it does is flash and nothing happens or shows up in the accounts box. Not after a reboot does it show up either
This notebook was working great before I shut it down and went on vacation. when I came back, presto, issues out of knowwhere. Does anyone have any ideas before I give SP1 a try? Also, how do you get rid of a user name icon from the desktop when the account is gone anyway?
Thanks for the help.
-Mike