Now, this is a neat little feature in Windows XP. When turned on, all your open applications that show up on the Start menu will be sorted by type. That is, if you open up an Internet Explorer window, then Minesweeper, then another IE window, the new IE window will be inserted between the first two. This keeps all IE windows next to each other, so you can locate them more easily.
This is great, but if you go too far, it can get annoying. After opening too many windows, some groups will collapse into one button that, when clicked, shows a cascading menu of all the windows involved. This is a bit annoying for those who like to point and say, "this is where my Hotmail window is." Too much reorganization, and it happens without you really realizing it. You may turn it off, but then you lose all button sorting on the taskbar.
Luckily, as is often the case, Microsoft added a registry key that allows you to modify this feature. It is located in "HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Explorer\Advanced" and called "TaskbarGroupSize." The default value is 0, and will collapse the oldest group of buttons once you get too many total buttons. Change it to 1, and you will see the collapsing of the group with the most open windows. Anything past 1 will automatically collapse groups of that size. If you set it to 6, then your IE windows will collapse if you have 6 or more of them open. Once you change the setting, just log out and log back in to activate it.
As always when editing the registry, you should be careful. You might also want to back up your registry before changing it.
Additional information may be found at Microsoft Knowledge Base Article ID: Q281628.