Newfolder.exe virus

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Few days ago my PC got affected badly by this virus. Ok here is the story ... errr... sort of complicated. As the name suggests "newfolder.exe" it started making folders in my PC. Whenever I would open a folder a new folder with the same name would get created. For example: When I open "My documents" a folder named My documents got created inside My documents folder. I clicked on it ... nothing happened .... clicked again ... nah nothing. I got suspicious and pressed "ctrl + alt + delete" and I got message "your task manager has been disabled by your administrator" WTF!!! Then I restarted my PC all to reapeat the same!! .... it was getting slower by that time. I realised that its foolishness to play with the folders. So I started searching about the problem on the internet and I found that my PC was infected by "New folder.exe" virus. I realised that the folders that got created were actually ".exe" files and everytime I clicked it, the more instances of the virus started. Oh yeah! I forgot. I was using AVG 8.0 free edition antivirus. I used to update it daily. But it failed me in the war against viruses :(. Till the time I realised my PC had gone so slow that I could not do anything. Finally I was left with no choice other than formatting my PC completely.] Anyone who has similar expirience, please share what did to do to get rid of that fu*ckin newfolder.exe virus.