UPDATE!

Its the Bagle worm that is causing all the grief. It has been installed FROM THIS IP to a date activated hidden folder. How the bloody hell do they do that!!!??? A folder called 'FU2' was detected in the system by one of the many progs I have used today to clean this crap up. Unfortunately unable to remove at this time. i have posted a HiJackThis log to some of the techie forums and hope something will surface.
Thanks again to you guys who offered up help.