After that, it goes into a hardware detection loop, meaning it finds and tries to install the same hardware again and again until the cows come home.
Windows 2000 and XP has a bug that it cannot properly install drivers using INF-files, when the RunOnce registry key is missing from the following location:
This key is often used by installers to execute post-reboot scripts and programs, but when these run, they sometimes inadvertently delete this key, causing all the mayhem you're having now.
Simply recreating this key, does the trick:
Now that the key exists, installation of hardware should function normally, and the infinite detection loop should end.