Laptop issues-need help please

I'm working on a Compaq Presario laptop that belongs to a friend-the antivirus had run out (Trend PcCillin) so I uninstalled and put AVG on it. Ran a scan, found some issues, ran Adaware and Spybot, found more issues, ran AVG in safe mode, found another issue. In the meantime, XP dld 27 updates and installed them. Thought I had it cleaned then started getting this error msg: dwwin.exe has been shut down-then ntos.exe has errors and has been shut down, finally explorer.exe bad image-this is not a valid window image. check against your installation disk.

Ran Hijackthis and here's the log:

Edit by chaslang: Inline HJT log removed. READ & RUN ME sticky not followed.