Major Wondows breakdown. Help

The Windows Vista on my system is corrupted. Can't install a new program, or the backed up programs. Even freshly downloaded won't work. For full synopsis:

I had my backup in an External HDD which got infected with another system. In infected system,the folders had an "exe" files with same name of folder ( ABC.exe in folder ABC). I thought it'd be okay after installing an AV. But after backing up and installing AV ( Quick Heal total Security 2011) it started quarantining installed programs exe files along with infected ones. Later it got worse and Windows applications as Sidebar and Defender updates won't work. Even AV GUI won't show up ( it only show up for updating, which it doesn't do), Then Windows blocked some start up program. However I am still able to connect to Internet or Bluetooth connection. Problem is it shows every new program to be installed as corrupted ( some NSIS error ), even newly downloaded. Only option I can think of now is to reinstall Windows Vista over it. But still in case any suggestion.