I know next t nothing about malware removal, and the laptop infected is my gf's and since I'm currently away, everything has to be done with her via phone… As a result if someone knowledgeable could guide me a bit that would be very helpful :)

Her laptop got infected with some malware, from a pen drive which had been in an Internet Café. That thing creates .exe files in lots of places, including, at the root of the pen drive:

Adventure Games.exe
File.exe
Latest Songs.exe
New Folder.exe
Picts.exe
Secrets.exe
Softwares.exe
New Folder(2).exe
New Folder(3).exe
New Folder(9).exe
Documents.exe

All of those have folders icons, so with the extension invisible they look exactly like one.

It starts lots of processes doing I don't know what, and disable the task manager, registry editor and the "folder options" panel (which would at least stop those .exe from masquerading as folders).

All that stuff runs even in safe mode.

I got her to run the Hijack tool, and here are the results:

Scan saved at 23:21:50, on 22/03/2008
Platform: Windows XP SP2 (WinNT 5.01.2600)
Boot mode: Normal

Running processes:
C:\WINDOWS\System32\smss.exe
C:\WINDOWS\system32\winlogon.exe
C:\WINDOWS\system32\services.exe
C:\WINDOWS\system32\lsass.exe
C:\WINDOWS\system32\svchost.exe
C:\WINDOWS\System32\svchost.exe
C:\Program Files\Intel\Wireless\Bin\EvtEng.exe
C:\Program Files\Intel\Wireless\Bin\S24EvMon.exe
C:\WINDOWS\system32\spoolsv.exe
C:\Program Files\ThinkPad\ConnectUtilities\AcPrfMgrSvc.exe
C:\Program Files\Common Files\Apple\Mobile Device Support\bin\AppleMobileDeviceService.exe
C:\Program Files\Grisoft\AVG Anti-Spyware 7.5\guard.exe
C:\PROGRA~1\Grisoft\AVG7\avgamsvr.exe
C:\PROGRA~1\Grisoft\AVG7\avgupsvc.exe
C:\PROGRA~1\Grisoft\AVG7\avgemc.exe
C:\Program Files\Bonjour\mDNSResponder.exe
C:\Program Files\Lenovo\Bluetooth Software\bin\btwdins.exe
C:\Program Files\Diskeeper Corporation\Diskeeper\DkService.exe
C:\Program Files\LENOVO\HOTKEY\FNF5SVC.exe
C:\WINDOWS\System32\svchost.exe
C:\Program Files\Common Files\Microsoft Shared\VS7Debug\mdm.exe
C:\Program Files\Softex\OmniPass\Omniserv.exe
C:\WINDOWS\system32\PMSveH.exe
C:\Program Files\Intel\Wireless\Bin\RegSrvc.exe
C:\WINDOWS\system32\svchost.exe
c:\program files\lenovo\system update\suservice.exe
C:\Program Files\IBM ThinkVantage\Rescue and Recovery\rrservice.exe
C:\Program Files\Common Files\Lenovo\Scheduler\tvtsched.exe
C:\Program Files\Viewpoint\Common\ViewpointService.exe
C:\Program Files\ThinkPad\ConnectUtilities\AcSvc.exe
C:\Program Files\Softex\OmniPass\OPXPApp.exe
C:\Program Files\ThinkPad\ConnectUtilities\SvcGuiHlpr.exe
C:\WINDOWS\Explorer.exe
C:\Program Files\Synaptics\SynTP\SynTPEnh.exe
C:\Program Files\Lenovo\HOTKEY\TpWAudAp.exe
C:\WINDOWS\system32\PMHandler.exe
C:\WINDOWS\AGRSMMSG.exe
C:\WINDOWS\vsnp2std.exe
C:\Program Files\Common Files\InstallShield\UpdateService\issch.exe
C:\Program Files\Softex\OmniPass\scureapp.exe
C:\PROGRA~1\THINKV~1\AMSG\amsg.exe
C:\PROGRA~1\Lenovo\LENOVO~2\LPMGR.exe
C:\Program Files\IBM ThinkVantage\Client Security Solution\cssauthe.exe
C:\Program Files\Picasa2\PicasaMediaDetector.exe
C:\Program Files\Google\Google Desktop Search\GoogleDesktop.exe
C:\Program Files\ThinkPad\ConnectUtilities\ACTray.exe
C:\Program Files\ThinkPad\ConnectUtilities\ACWLIcon.exe
C:\WINDOWS\system32\igfxtray.exe
C:\Program Files\Google\Google Desktop Search\GoogleDesktopIndex.exe
C:\WINDOWS\system32\hkcmd.exe
C:\Program Files\Google\Google Desktop Search\GoogleDesktopDisplay.exe
C:\WINDOWS\system32\igfxpers.exe
C:\PROGRA~1\Grisoft\AVG7\avgcc.exe
C:\Program Files\Corel\Corel Photo Album 6\MediaDetect.exe
C:\Program Files\Common Files\Lenovo\Scheduler\scheduler_proxy.exe
C:\Program Files\iTunes\iTunesHelper.exe
C:\WINDOWS\system32\ctfmon.exe
C:\Program Files\Messenger\msmsgs.exe
C:\Program Files\Google\GoogleToolbarNotifier\GoogleToolbarNotifier.exe
C:\Program Files\Skype\Phone\Skype.exe
C:\Program Files\Windows Media Player\WMPNSCFG.exe
C:\Program Files\Google\Google Talk\googletalk.exe
C:\Program Files\Lenovo\Bluetooth Software\BTTray.exe
C:\PROGRA~1\Grisoft\AVG7\avgw.exe
C:\Program Files\iPod\bin\iPodService.exe
C:\Program Files\Mozilla Firefox\firefox.exe
C:\Documents and Settings\SWATI\Desktop\HiJackThis_v2.exe
C:\WINDOWS\system32\KHATARNAK.exe
C:\WINDOWS\system32\KHATARNAK.exe

R0 - HKCU\Software\Microsoft\Internet Explorer\Main,Start Page = http://www.lenovo.com/us/en/
R1 - HKLM\Software\Microsoft\Internet Explorer\Main,Default_Page_URL = http://www.lenovo.com/us/en/
F2 - REG:system.ini: Shell=Explorer.exe KHATARNAK.exe
O2 - BHO: Adobe PDF Reader Link Helper - {06849E9F-C8D7-4D59-B87D-784B7D6BE0B3} - C:\Program Files\Common Files\Adobe\Acrobat\ActiveX\AcroIEHelper.dll
O2 - BHO: Google Toolbar Helper - {AA58ED58-01DD-4d91-8333-CF10577473F7} - c:\program files\google\googletoolbar3.dll
O2 - BHO: Google Toolbar Notifier BHO - {AF69DE43-7D58-4638-B6FA-CE66B5AD205D} - C:\Program Files\Google\GoogleToolbarNotifier\2.0.1121.2472\swg.dll
O3 - Toolbar: &Google - {2318C2B1-4965-11d4-9B18-009027A5CD4F} - c:\program files\google\googletoolbar3.dll
O4 - HKLM\..\Run: [SynTPEnh] C:\Program Files\Synaptics\SynTP\SynTPEnh.exe
O4 - HKLM\..\Run: [High Definition Audio Property Page Shortcut] HDAShCut.exe
O4 - HKLM\..\Run: [TPWAUDAP] C:\Program Files\Lenovo\HOTKEY\TpWAudAp.exe
O4 - HKLM\..\Run: [PMHandler] C:\WINDOWS\system32\PMHandler.exe
O4 - HKLM\..\Run: [AGRSMMSG] AGRSMMSG.exe
O4 - HKLM\..\Run: [snp2std] C:\WINDOWS\vsnp2std.exe
O4 - HKLM\..\Run: [ISUSPM Startup] c:\PROGRA~1\COMMON~1\INSTAL~1\UPDATE~1\ISUSPM.exe -startup
O4 - HKLM\..\Run: [ISUSScheduler] "C:\Program Files\Common Files\InstallShield\UpdateService\issch.exe" -start
O4 - HKLM\..\Run: [OmniPass] C:\Program Files\Softex\OmniPass\scureapp.exe
O4 - HKLM\..\Run: [AMSG] C:\PROGRA~1\THINKV~1\AMSG\amsg.exe
O4 - HKLM\..\Run: [LPManager] C:\PROGRA~1\Lenovo\LENOVO~2\LPMGR.exe
O4 - HKLM\..\Run: [cssauthe] "C:\Program Files\IBM ThinkVantage\Client Security Solution\cssauthe.exe" silent
O4 - HKLM\..\Run: [Picasa Media Detector] C:\Program Files\Picasa2\PicasaMediaDetector.exe
O4 - HKLM\..\Run: [DiskeeperSystray] "C:\Program Files\Diskeeper Corporation\Diskeeper\DkIcon.exe"
O4 - HKLM\..\Run: [Google Desktop Search] "C:\Program Files\Google\Google Desktop Search\GoogleDesktop.exe" /startup
O4 - HKLM\..\Run: [ACTray] C:\Program Files\ThinkPad\ConnectUtilities\ACTray.exe
O4 - HKLM\..\Run: [ACWLIcon] C:\Program Files\ThinkPad\ConnectUtilities\ACWLIcon.exe
O4 - HKLM\..\Run: [IBM Warranty Notification] "C:\Program Files\IBM\acp\ERTS0749\ERTS0749.exe /nointro"
O4 - HKLM\..\Run: [IgfxTray] C:\WINDOWS\system32\igfxtray.exe
O4 - HKLM\..\Run: [HotKeysCmds] C:\WINDOWS\system32\hkcmd.exe
O4 - HKLM\..\Run: [Persistence] C:\WINDOWS\system32\igfxpers.exe
O4 - HKLM\..\Run: [AVG7_CC] C:\PROGRA~1\Grisoft\AVG7\avgcc.exe /STARTUP
O4 - HKLM\..\Run: [Corel Photo Downloader] C:\Program Files\Corel\Corel Photo Album 6\MediaDetect.exe
O4 - HKLM\..\Run: [TVT Scheduler Proxy] C:\Program Files\Common Files\Lenovo\Scheduler\scheduler_proxy.exe
O4 - HKLM\..\Run: [QuickTime Task] "C:\Program Files\QuickTime\qttask.exe" -atboottime
O4 - HKLM\..\Run: [iTunesHelper] "C:\Program Files\iTunes\iTunesHelper.exe"
O4 - HKLM\..\Run: [Adobe Reader Speed Launcher] "C:\Program Files\Adobe\Reader 8.0\Reader\Reader_sl.exe"
O4 - HKCU\..\Run: [ctfmon.exe] C:\WINDOWS\system32\ctfmon.exe
O4 - HKCU\..\Run: [MSMSGS] "C:\Program Files\Messenger\msmsgs.exe" /background
O4 - HKCU\..\Run: [swg] C:\Program Files\Google\GoogleToolbarNotifier\GoogleToolbarNotifier.exe
O4 - HKCU\..\Run: [SifyBB] C:\Program Files\Sify Broadband\BBImpSec.exe
O4 - HKCU\..\Run: [Skype] "C:\Program Files\Skype\Phone\Skype.exe" /nosplash /minimized
O4 - HKCU\..\Run: [WMPNSCFG] C:\Program Files\Windows Media Player\WMPNSCFG.exe
O4 - HKCU\..\Run: [googletalk] "C:\Program Files\Google\Google Talk\googletalk.exe" /autostart
O4 - HKCU\..\Run: [KHATARNAK Loader] C:\WINDOWS\system32\KHATARNAK.exe
O4 - HKUS\S-1-5-19\..\Run: [AVG7_Run] C:\PROGRA~1\Grisoft\AVG7\avgw.exe /RUNONCE (User 'LOCAL SERVICE')
O4 - HKUS\S-1-5-20\..\Run: [AVG7_Run] C:\PROGRA~1\Grisoft\AVG7\avgw.exe /RUNONCE (User 'NETWORK SERVICE')
O4 - HKUS\S-1-5-18\..\Run: [AVG7_Run] C:\PROGRA~1\Grisoft\AVG7\avgw.exe /RUNONCE (User 'SYSTEM')
O4 - HKUS\.DEFAULT\..\Run: [AVG7_Run] C:\PROGRA~1\Grisoft\AVG7\avgw.exe /RUNONCE (User 'Default user')
O4 - Global Startup: Bluetooth.lnk = ?
O4 - Global Startup: Microsoft Office.lnk = C:\Program Files\Microsoft Office\Office10\OSA.EXE
O8 - Extra context menu item: &Google Search - res://C:\Program Files\Google\GoogleToolbar1.dll/cmsearch.html
O8 - Extra context menu item: &Translate English Word - res://C:\Program Files\Google\GoogleToolbar1.dll/cmwordtrans.html
O8 - Extra context menu item: Backward Links - res://C:\Program Files\Google\GoogleToolbar1.dll/cmbacklinks.html
O8 - Extra context menu item: Cached Snapshot of Page - res://C:\Program Files\Google\GoogleToolbar1.dll/cmcache.html
O8 - Extra context menu item: E&xport to Microsoft Excel - res://C:\PROGRA~1\MICROS~2\Office10\EXCEL.EXE/3000
O8 - Extra context menu item: Send to &Bluetooth Device… - C:\Program Files\Lenovo\Bluetooth Software\btsendto_ie_ctx.htm
O8 - Extra context menu item: Similar Pages - res://C:\Program Files\Google\GoogleToolbar1.dll/cmsimilar.html
O8 - Extra context menu item: Translate Page into English - res://C:\ProgramFiles\Google\GoogleToolbar1.dll/cmtrans.html
O9 - Extra button: (no name) - {08B0E5C0-4FCB-11CF-AAA5-00401C608501} - C:\Program Files\IBM\Java142\jre\bin\NPJPI142.dll (file missing)
O9 - Extra 'Tools' menuitem: IBM Java Console - {08B0E5C0-4FCB-11CF-AAA5-00401C608501} - C:\Program Files\IBM\Java142\jre\bin\NPJPI142.dll (file missing)
O9 - Extra button: Messenger - {FB5F1910-F110-11d2-BB9E-00C04F795683} - C:\Program Files\Messenger\msmsgs.exe
O9 - Extra 'Tools' menuitem: Windows Messenger - {FB5F1910-F110-11d2-BB9E-00C04F795683} - C:\Program Files\Messenger\msmsgs.exe
O11 - Options group: [JAVA_IBM] Java (IBM)
O14 - IERESET.INF: START_PAGE_URL=http://www.lenovo.com/us/en/
O17 - HKLM\System\CCS\Services\Tcpip\..\{CA440955-B1A5-4F68-8119-A3CFAF5ED8F1}: NameServer = 203.187.255.92 203.187.255.91
O20 - AppInit_DLLs: C:\PROGRA~1\Google\GOOGLE~1\GOEC62~1.DLL
O20 - Winlogon Notify: ACNotify - ACNotify.dll (file missing)
O22 - SharedTaskScheduler: Browseui preloader - {438755C2-A8BA-11D1-B96B-00A0C90312E1} - C:\WINDOWS\system32\browseui.dll
O22 - SharedTaskScheduler: Component Categories cache daemon - {8C7461EF-2B13-11d2-BE35-3078302C2030} - C:\WINDOWS\system32\browseui.dll
O23 - Service: Ac Profile Manager Service (AcPrfMgrSvc) - Lenovo - C:\Program Files\ThinkPad\ConnectUtilities\AcPrfMgrSvc.exe
O23 - Service: Access Connections Main Service (AcSvc) - Lenovo - C:\Program Files\ThinkPad\ConnectUtilities\AcSvc.exe
O23 - Service: Apple Mobile Device - Apple, Inc. - C:\Program Files\Common Files\Apple\Mobile Device Support\bin\AppleMobileDeviceService.exe
O23 - Service: AVG Anti-Spyware Guard - Anti-Malware Development a.s. - C:\Program Files\Grisoft\AVG Anti-Spyware 7.5\guard.exe
O23 - Service: AVG7 Alert Manager Server (Avg7Alrt) - GRISOFT, s.r.o. - C:\PROGRA~1\Grisoft\AVG7\avgamsvr.exe
O23 - Service: AVG7 Update Service (Avg7UpdSvc) - GRISOFT, s.r.o. - C:\PROGRA~1\Grisoft\AVG7\avgupsvc.exe
O23 - Service: AVG E-mail Scanner (AVGEMS) - GRISOFT, s.r.o. - C:\PROGRA~1\Grisoft\AVG7\avgemc.exe
O23 - Service: Bonjour Service - Apple Inc. - C:\Program Files\Bonjour\mDNSResponder.exe
O23 - Service: Bluetooth Service (btwdins) - Broadcom Corporation. - C:\Program Files\Lenovo\Bluetooth Software\bin\btwdins.exe
O23 - Service: Diskeeper - Diskeeper Corporation - C:\Program Files\Diskeeper Corporation\Diskeeper\DkService.exe
O23 - Service: Intel(R) PROSet/Wireless Event Log (EvtEng) - Intel Corporation - C:\Program Files\Intel\Wireless\Bin\EvtEng.exe
O23 - Service: Fn+F5 Service (FNF5SVC) - Lenovo. - C:\Program Files\LENOVO\HOTKEY\FNF5SVC.exe
O23 - Service: Google Updater Service (gusvc) - Google - C:\Program Files\Google\Common\Google Updater\GoogleUpdaterService.exe
O23 - Service: InstallDriver Table Manager (IDriverT) - Macrovision Corporation - C:\Program Files\Common Files\InstallShield\Driver\1150\Intel 32\IDriverT.exe
O23 - Service: iPod Service - Apple Inc. - C:\Program Files\iPod\bin\iPodService.exe
O23 - Service: Softex OmniPass Service (omniserv) - Softex Inc. - C:\Program Files\Softex\OmniPass\Omniserv.exe
O23 - Service: PMSveH - Lenovo - C:\WINDOWS\system32\PMSveH.exe
O23 - Service: IBM PSA Access Driver Control (PsaSrv) - Unknown owner - C:\WINDOWS\system32\PsaSrv.exe (file missing)
O23 - Service: Intel(R) PROSet/Wireless Registry Service (RegSrvc) - Intel Corporation - C:\Program Files\Intel\Wireless\Bin\RegSrvc.exe
O23 - Service: Intel(R) PROSet/Wireless Service (S24EventMonitor) - Intel Corporation - C:\Program Files\Intel\Wireless\Bin\S24EvMon.exe
O23 - Service: System Update (SUService) - Lenovo Group Limited - c:\program files\lenovo\system update\suservice.exe
O23 - Service: TVT Backup Service - Unknown owner - C:\Program Files\IBM ThinkVantage\Rescue and Recovery\rrservice.exe
O23 - Service: TVT Scheduler - Lenovo Group Limited - C:\Program Files\Common Files\Lenovo\Scheduler\tvtsched.exe
O23 - Service: Viewpoint Manager Service - Viewpoint Corporation - C:\Program Files\Viewpoint\Common\ViewpointService.exe

–
End of file - 12600 bytes

Now I don't know much about Windows, but that "F2 - REG:system.ini: Shell=Explorer.exe KHATARNAK.exe" line sounds suspicious, and a little Googling showed that it is linked to that New Folder.exe creation (though I couldn't find any real documentation on it, just a few threads with not much data). What do I tell her to do to get rid of it? I suppose that I need to kill the processes involved (don't know how though with the Task manager disabled), then remove those entries one way or an other (no idea how either) and then delete all the .exe files everywhere, though I really don't know how to find them all…

Any help very much welcomed!