I've tried Safe Mode as well - though not updating steam there. I'll try that next.
I'll move to Win 7 if I have to. I haven't upgraded because I have had no compelling reason to. The few things I use Windows for XP is more than capable of and is nicely stable so the cost of a new OS really can't be justified. And I really don't have that many games. This is only the second to need Steam (the other being FEAR2). I will be doing my research in future before buying any game to ensure it does NOT require Steam.
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Obsolescence is just a lack of imagination.
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