AVG Antivirus has joined the not so popular club of antivirus vendors, that has released faulty definitions for their virus scanner.  In this case it caused AVG to wrongly detect a virus in a vital Windows OS file, which in worst case (if you followed AVG’s advice) could lead to a crashed Windows installation.

From the AVG forum here is a possible solution that do not require re-installation;

PC crash after AVG update 9 Nov 2008

Posted by: pa3bar (IP Logged)
Date: November 9, 2008 04:45PM

Many PC’s crashed after todays’s update of AVG. The update destines user32.dll as a virus: PSW. banker4.APSA.
Valid for Win XP SP2 and SP3 with AVG7.5 and AVG 8.
This is not a virus, but an essential part of your windows programme.

before you start up your PC, unplug the internet cable. Boot your PC and disable in your firewall the access to internet for the AVG update manager. Reconnect the internet cable. In this way your PC stays safe from the maliceous AVG update.

if you happen to believe the AVG programme (like I did) when it shows you the virus alert, and have choosen “heal”or quarantine””your PC will no longer restart. It shows a blue screen at start up and tells you it cannot find winsvr, error c0000135. System recovery has no effect. Don’t panic (like I did) but:

-restart your PC in safe mode (press F8 during windows start up)
-open the AVG control centre by clicking the logo or via start-programs-AVG
-go to the virus vault, select user32.dll and click restore.
-empty the virus vault
-close AVG
-now unistall the whole AVG program: start-programs-AVG-uninstall
-reboot the PC and it is fine.