Security Software Virus problem in PC. I am confused now :S

raksrules

Level N
My cousin's computer seems to be big time screwed up by viruses and what not.
Following things occur in his machine.

1. Computer never starts in Safe mode. It does not allow only.
2. After computer starts normally, i can not go to task manager, neither by right clicking the task manager nor by ctrl-alt-del
3. Start -> Control Panel -> clicking on any of the icons like add remove etc all give the error

c:\windows\system32\rundll... is not a valid win32 application

4. Neither can i uninstall by going to the program menu (start -> programs -> some xyz program -> uninstall)

5. start -> run -> cmd gives the same above error.
6. Going to google and searching anything and then clicking any link from the search does not got to the link but diverts to something like megasearch.com link :S
What i did now ?

So as an attempt to repair things i first ran a msconfig and unticked all junks in startup. There were lot of useless junk named programs (like ixdsjkhd.exe and all)
Then downloaded avira antivirus and scanned the entire machine. It did more than 5000 detections :O but the worst part is most of the program exes are affected and hence all the programs in the machine are now useless.
Like
c:\videolan\vlc\vlc.exe is infected similarly all required exes :(

What i plan to do now ?

Now it seems i have run out of options and thing the only way out is formatting the machine and reinstalling the OS. I checked that the PC does support booting from USB drive so i plan to create a bootable EXE and install XP again.

Is my approach right ? Any checks i missed ? Any workaround ?
 
^ no workaround i think. Do full format and install new to be on safe side.

Better take a backup of all important files and also bookmarks in ie/ ff if possible after verifying that they are clean.
 
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