Here's the story
Windows XP SP3, in December, broke a few shells....one of which I had, a program called Better Rename. I wasn't really using it, so removing it, solved my right click problem. But they have an updated version for those who care. It seems that another program PowerDesk, which I never used, had a similar problem.
My right click problem was there since December but never manifested itself in my normal workflow.
Perhaps more interesting is the tool need to debug the shell problem. Its free and called shellexview and can be gotten at
http://www.nirsoft.net
You can see all the shellextensions; disable them without rebooting, and find the problem by trial and error. I sorted by manufacturer and then started turning off non MS extensions in groups, until I found the culprit.
Thanks for listening.