ZFW - I'm pretty sure you have an infection there and I don't think it is a nice one.
The classic 'cannot run .exe and .com' is a signature of some of the 'heavier' ones. I had one back in October -
srosa/bagle - and cleared it after much effort. The main saviour for me was Hiren's Boot Disk (transferred to a USB stick) which enables boot into a completely separate mini windows system letting you run stuff on the main machine/copy reg files and system files from back-ups etc.
You will mostly need to work through safe mode. The 'easiest' option is the much-toted 'reformat/reinstall everything windows', but I read that the latest vitro/virut viruses can defeat even that option. The really nasty ones appear to be able to 'hide' from AV programmes (including loading into memory before some of these progs get 'going'), which is why I now use a battery of them at intervals on the principal that they cannot hide from everything. I have found Avast's boot scan a particularly powerful weapon as it runs before a lot of the crap has a chance to load. Another 'Last resort' is 'Combofix' or 'Fixykill' but you need to be careful with those.
I do recommend ALL to look at Hiren's stuff, however - it was a godsend for me and enabled me to clean NO 2 son's machine (so far!) of a deep vitro/virut infection.