Has anybody faced a similar problem?

No fear Fist of all,throw away AVG Then try to remove it with Antivir,if it doesn't work try to put your hdd in a clean pc with an updated version of Antivir,then scan the infected disk. Try also: - Xoftspy - SuperAntiSpyware and update your Malwarebytes Antimalware (very good sw ) Answer back if you have still problems ByeZ

AVG is great but I think it is already infected. Have you tried doing the scan in safe mode? If you did then you need another AV that scan at boot. Avast has this feature. Before you download/install it, close all that you could close in notification area except internet connection, close all applications too expect your browser. download and install avast in parallel with your AVG if it will allow. At the end of the installation check "Schedule a boot scan", don't reboot just yet update your copy first with the latest virus definition and when its done then restart. During the scan if it cannot be clean move it to quarantine, place it in a folder and find a clean one replacement in the net afterwards. When done you can remove avast but reinstall AVG and keep it always up to date.

OMG that happened with my PC and every one of my exe files showed up as a virus on my AVAST anti-virus. i deleted all the infected file and in the end i just had to format my C drive and reinstall windows all over again. i think you should do the same too, create a back-up of all your important files, remove the virus and reinstall windows.

I also had the exact same problem a year back. All my exe files were corrupted. I had a free version of AVG and it was of no use. So I had to backup all my non-exe files and then do a complete format of my computer. It was painful, that I had to do it, but there was no other option. After that it was fine but I could never recover my software setup files.