There are several reasons why System Restore may not be working:
- Lack of drive space.
- Task Scheduler has to be working.
- Make sure the "Volume Shadow" service is running.
This may be cause for concern for Malware. There's an easy way for anyone with Windows to check for malware. Click the start button, click "Run" and type "MRT", then hit the return key. That will launch the Malicious Software Removal tool which will do a thorough scan for malware. This tool is not a replacement for antivirus software. It won't block viruses and doesn't even have as large of a virus database, but is pretty effective in telling whether or not a system is infected.
It could be trying to save to a drive that just doesn't have enough space. System Restore requires at least 300MB free.
Make sure this hasn't been disabled, and that there's an entry called "SR".
Right click on "My Computer" and select "Manage". Go to the "Services" tab in that management console, and make sure the "Volume Shadow" service is running.
For a more comprehensive list of things to try, take a look at this article from HelpDesk.com.