At this point it sounds like the OS is either hosed, or so badly infected you need to move beyond it. By that I am suggesting you grab a bootable OS CD (dozens of linux distros have them) and running anti-virus + anti-malware scans of the infected drive. They should be able to detect and remove infected files that way... but there is no guarantee it will fix the problem as the damage may already have been done.
I'd suggest backing up all the data you need as well using the bootable LiveCD. And scan that too before introducing it into a new Windows OS. Only after you have attempted to clean the OS install would I suggest attempting a system repair from the W7 DVD or a repair disk.
(There are dozens of LiveCDs and guides for many of them via Google, but if someone has used or knows of a specific one that's easy to use please post it for the OP!

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