Malware & Windows activation code

I have a kids PC that is terribly infected with malware. Currently, I can't get Windows completely loaded and access anything on the desktop, which is causing headaches to clean the PC. I keep getting the following message: "Copy of Windows must be activated before you can log on. Do you want to activate windows?". I believe malware is causing this. I know there are keyloggers installed with the Trojans, so I'm a bit weary about typing in my Windows activation code. Am I being paranoid?
Is there any risk of typing in my Windows activation code?

Any thoughts?

 

I solved the problem. I swapped drives between the bad pc and a good pc. I put the suspect drive into a good normal PC and all hell broke loose, thus the Windows activation message.
Anyway, I'll work my way over to the malware threads and post my issues.