Seems like my weekend was marred with multiple computer issues. While I fixed the issue with "How to fix Windows Explorer crash when viewing folder with .avi / movie files?" - I had a second issue that came up. Which I suppose was caused with my several trial and error of many solutions to fix my original issue. The new problem was that none of the images files used to open up on double-click. Even When I point to the image file and ask it to open with "Windows Picture and Fax Viewer" - nothing used to happen. Simply Nothing!!
I was for once shocked and even was thinking of an eventuality to re-install my Windows XP from scratch or using a third party picture viewer like IfranView. But I just started to analyse where things could go wrong (being a techie does help :) ). I could finally zero in on a unscrupulous dll being un-registered.
Well, the solution is simple. Open the Command Prompt (Run > cmd) and type the below lines and things will start to work fine.
regsvr32 /i %windir%\system32\shimgvw.dll
This possibly re installs the dll associated with the Picture and Fax viewer.