A friend of mine recently received an error message whenever he was trying to open iTunes. The error stated that the file scarddlg.dll was missing on the system and that a reinstallation of the application might fix the problem. A reinstall did not help and he asked me if I was able to come up with a solution to his problem.
A quick look on the Internet revealed that scarddlg.dll was related to the Windows Smart Card service. I asked him to load services.msc in the run box and search for that entry. It turned out that he had disabled the service. I asked him to enable it again and from then on iTunes loaded as usual again.
I also knew that a software called xp lite was offering a way to remove that service completely from Windows, I think it was in the Pro version of it. If that has been done the service would not appear at all in the services menu anymore. You need to use XP Lite to add that service again. Another option would be to install Windows XP again.

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Using XPLite and iTunes myself, I have the same problem, yet after the innitial error screen, a second iTunes error screen pops up, stating the following:
“Windows system components that iTunes requires are missing or corrupted.
iTunes might be unable to launch or communicate with iPod or iPhone. For help repairing your operating system, click More Information.”
It also displays the following 2 buttons to choose from:
[ More Information ] [ Continue ]
If I choose [ Continue ], iTunes opens up normally and syncs properly as far as I can tell.