Help needed with XP and websites problem

I really hope someone can help me out here. My system somehow got infested by a spyware that resisted all attempts to delete so I decided my only option was to backup my data and format the drive. I have done it many times before and was confident I could reinstall XP. I preceeded to do that and ensured I updated from the windows site. I then decided to download additional programs I am fond of like Hello and Picasa, however that is when I noticed a problem. Neither sites loaded properly and whilst downloading the software the transfer rate halted and an error appears 'server connection has been reset'. I assumed it was a glitch on the Hello site but the same happened on other sites I visited. So basically since formatting nd reinstalling XP I am unable to download anything from any site with the exception of the Microsoft site! I have a good grasp of the basics like internet options and control panel settings and as far as I know they are as the should be. I would really appreciate some help or advice with this weird and annoying problem.

Ok, first, download Hijack This here and then scan but do not fix anything yet. Save your scan to a log file then click here to post your log into a new thread in the "hijack this logs and spyware/malware removal" forum.