I had this problem going from ie4.0 to ie5.5 in windows 98. Here is how I recovered.
-Booted into command prompt holding cntl key at boot
-went into c:\windows\command and ran edit
-editted the system.ini in c:\windows
-change the shell from explorer.exe to winfile.exe
-reboot and the pc will look like windows 3.1
-reinstall ie 5.5 from cd by clicking on the ie5setup.exe on the cd (you may have to play with typical vs full install)
-reboot as suggested but boot in SAFE MODE by holding cntl
-once in winfile edit the system.ini again and change shell back to explorer.exe
-reboot making sure again to go into safe mode
-windows will grind for a while changing settings
-once in normal desktop shutdown
-reboot in normal mode
-windows will update drivers quickly then all clear

NOTE: At some point I also updated the demon dll's (msvcrt, msvcrt20 and msvcrt40) from another machine.