Sounds like spyware to me.
Run spybot as soon as you can.
Daft question but, have you done a full scan with the avg you already have. It may just pick something up.
Its an excellent free program to identify and remove most spyware.
Linky
When you run it, it will tell you what spyware you have on your system then try to deal with them.
Sometimes you have to run it a few times (restarting pc after each sweep) to get a completely clear machine. If it does identify some tricky ones, it will ask to run on startup then stop the programs from launching in the first place before bashing them on the head to kill em!
Try spy bot as said. but it looks like you are heading, for a format and full restore on your hard drive.
Whoa! Easy Tiger! Dont go mentioning the 'f' word just yet!
OP - Do you have access to another pc that you could d/l spybot and usb memory stick/cd it across?
Also - see if have/can d/l another browser to the one you are using - firefox,google etc etc because some spyware will only attack ie7.
If it is what I think it is. You wont beable to go anywhere to down load anything at all. As it will as stated stop you going to mirosoft update, or any other sight.
I agree. I suspect you have a trojan that prevents you accessing all the tools you would normally use to investigate and fix the problem.
Start thinking about the 'F' word.
And as for spybot, about as much use as a chocolate fireguard at the best of times.
I updated my AVG 1hour ago. Have you got a memory stick pluged into you comp. If so remove it and try again. As there is a virus (just out) that attacks memory sticks.
Stay well away from norton and mcaffee.
I know Norton is a pain but whats the problem with Mcafee ?