Yes I did run dxdiag and there is no problem reported there. When I check input it can see my keyboard and mouse. Terminal Server is configured to ON on my system just to let you know.
It looks like your MediaPortal.xml configuration file has not been created, is lost, or has been corrupted. Please find the Team MediaPortal\MediaPortal folder in your start menu and enter the "user files" shortcut. Check if there is a MediaPortal.xml file in that folder. Also check if there is a MediaPortal.xml.bak file in that folder.
I don't think you're looking in the right place because the files that you mentioned are usually in the installation folder not the user files folder. Please check for the MediaPortal.xml file in:
Vista/7 = C:\ProgramData\Team MediaPortal\MediaPortal
XP = C:\Documents and Settings\All Users\Application Data\Team MediaPortal\MediaPortal
Those folders are hidden folders so you'll need to paste the path into the address bar in Windows Explorer or enable viewing of hidden and system files and folders (google can tell you how to do that).
Okay, so the files are totally missing. Please try to run MP configuration to create a new configuration file. If that is the part that is failing then please download the attached MediaPortal.xml into that folder and try again.