Hello georgefk -
There was something wrong 'before' you removed the file. An unsecured fresh copy of XAMPP will not have a .htaccess file in the \xampp\htdocs\xampp folder.
Did you have an earlier version of XAMPP installed, or a prior attempt at 1.8.0?
Where did you install XAMPP? It probably should be in the root of a persistent Windows drive/partition. If its in a subfolder, then no special characters or spaces in the path.
The reason security.php is not working? There are many 'conditions' set by running security.php, it creates a variety of 'hidden' files it later reads to determine its 'status' each time it is run. When you removed the .htaccess file, security.php's state became inconsistent. If you want gory details, read through \xampp\secority\htdocs\security.php
I suggest following the recipe in the sticky above about Upgrading XAMPP to remove XAMPP properly, and then do a fresh install with a clean new DL (preferably the the .7z or .zip versions)viewtopic.php?f=16&t=50988