Two days ago my Windows XP updated itself online because the live updates option was ON in the Security Panel.
Since then when I start windows it doesn't ask for password and starts right a way. Also when I log off or switch user then whatever i enter as password it accepts it and starts windows. It is a critical concern for me as I have important files on my pc and I want to fix it before anyone on my network realize that my windows has gone made and accepts valid and invalid all passwords.
Sounds like you enabled the Guest account without a password somehow. Login as a user with Admin level access and check the User Accounts via the Control Panel. You can add and remove accounts from there as well as set their access levels.