Malware limiting my virtual memory to almost none

Hello, I seem to have contracted some sort of malware that seems very damaging (hopefully not permanent!).

At first, I got signs of Antivirus XP (popups,wallpaper,shortcuts) along other suspicious things (spoolsv.exe filling up my harddrive, ntvdm.exe using all the CPU power). It wouldn't let me update my antivirus program, so eventually I shutdown my laptop.

Now, it seems Windows has become weakened to near unusability, by limiting the system resources/ virtual memory somehow (I have only been able to open Task Manager, Regedit, Windows Explorer, and HijackThis).

When I start it up in normal mode, it takes ages and eventually just gets to the blue wallpaper. Nothing can be opened except Task Manager (Ctrl+alt+Delete) and from here I can see my files are still there, but I can't open any programs (that I suspect use too much memory). So I can't open/install any of the usual antivirus programs. Even System Restore won't open properly! In safe mode, Windows Explorer barely works, but crashes and logs out every minute or so.

All the while, icon graphics are disappearing, and I'm getting messages such as:
Low on Virtual Memory.
System Resources too low.
Out of Memory.
Parser Message.
And others that don't even have text.

If I can't find a small enough virus removal program, I'm thinking I might have to do this manually somehow- deleting appropriate files/registry or maybe doing something with the paging file?
I'm wondering if getting rid of the virus will automatically fix the system, or will I have to do something else?

 

Here is a log:

Logfile of HijackThis v1.99.1
Scan saved at 4:00:56 PM, on 19/08/2008
Platform: Windows XP SP2 (WinNT 5.01.2600)
MSIE: Internet Explorer v7.00 (7.00.6000.16640)

Edit by chaslang: Inline outdated version of HJT log removed.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