Folder Permissions are corrupted and unsorted?

Every time I try to look at the security settings for a Folder I get this
message:

***
Security Dialog Box
The permissions on *folder* are incorrectly ordered, which may cause some
entries to be ineffective. Press OK to continue and sort the permissions
correctly, or Cancel to reset the permissions.
***

When I click on OK the Security tab shows my username and SYSTEM with all
the permission boxes unchecked. When I click Cancel, the Security tab shows
the user Everyone that has Full Control checked in the Allowed section.

None of these settings are good for me.
Is there anything in the registry that might be corrupted?
I don't want Everyone to look at my items nor do I want to deny myself that
privilage. If I fix this manually, there are many folders which would take
me hours.

I am using WinXPPro SP2 with the latest updates.

Thanks in advance.
Gino