You are correct - this is a virus, I got hit by this last week, proabably about the same time you did ! Its call the matsnu1 virus - but there are various versions too!
I always work on the basis that a reformat and reinstall is the best way of getting rid of the virus, but there are guides on the net talking you through a live removal.
This is a guide to the one i got,
http://remove-free.com/get-rid-west-...sive-scareware
I did a re-install,to a fresh HDD then used a tool called matsnu1decrypt.exe to unencrypt and return the files on my old hdd back to their original format - I've attached a zip file with that in there. You have to have an original non- encrypted file of the same file ie a backup of a file thats not been damaged as a reference file, but then it will do the rest of your harddrive for you.
Good luck!