Jack,
Make sure your taskbar is not locked. That might solve the issue. If not, try the following:
Right click the taskbar, select properties, select customize at the bottom near where it says Hide inactive icons, then click restore default.

If that does not work, then try this:
http://www.winguides.com/registry/display.php/918/

The site above outlines how to make a registry entry for hiding inactive icons.
Check your registry to make sure you have that key. MAKE SURE YOU ARE IN THE RIGHT REGISTRY PATH, before you make any changes to the registry create a restore point!!!


If that doesn't help, you can try several other things,
a system restore, a system file check (click start, run, then type sfc /scannow) MAKE SURE YOU HAVE YOUR XP DISK READY IF YOU RUN THE SFC!!

hope that helps,
BB