Joyce,

By stopping and then restarting system restore as follows:

System | Performance | File System | Troubleshooting and check "Disable
System Restore", Apply and IMMEDIATELY reboot.  This will flush you
restore folder and erase all checkpoints, then,
System | Performance | File System | Troubleshooting and uncheck "Disable
System Restore", Apply and again IMMEDIATELY reboot.  This should now
automatically create a new checkpoint immediately following the restart.
Finally adjust the space allocated to the restore folder,
System | Performance | File System | Hard Disk and adjust the restore
slider to your preferred setting.  A  figure of 200MB is normally more
than adequate for day to day use allowing perhaps a week of checkpoints to
be available although increasing this to perhaps 400-500MB for a few days
during periods of large installs such Microsoft Office is advisable.

If that doesn't work for some reason (and it may not if the state manager
control files are damaged), post back and someone will post details of how
to clear the archive.

You may now want to check that system restore is working correctly by
carrying out he following quick test:
a) Create a shortcut on your desktop to a file.
b) Create a manual checkpoint
Could you create a checkpoint?
c) Delete the shortcut
d) Restore your PC to the checkpoint you created.
Was the shortcut restored?  Did you see any error messages?
e) Reboot your PC
Was the checkpoint retained?