How do I shrink my cursor and icons in Windows XP?

Sounds like a big problem. :-) Seriously, my first thought was that you needed to go in and change your theme in Windows XP, but the more I read your question, the more I believe that they've simply adjusted your screen resolution. If you normally run at, say, 1280x1024 and they adjust it down to 800x600, then everything is going to be far bigger than normal because you're "stretching" less information to fill up the screen than you're used to.

This is pretty easy to adjust, however, so if you go to START --> Control Panels and choose Display, you'll find the following set of configuration options:

What you need is the "Settings" tab, however. Click on it and:

As you can see, there's a simple slider that lets you adjust your resolution: try moving it to the right and setting a higher resolution than you currently have on your monitor. Most monitors have a recommended setting too, by the way, often something like 1280x1024, which gives you the crispest text display. Make a change, click "Apply" and you'll see the change made (hopefully) and have a chance to confirm it:

If you don't see that because your screen is wonky, don't panic. In 15 seconds it automatically reverts back to a functional setting and your change is discarded. When you get things back to normal, just choose "OK" and you'll be back!