Discussion moved from Virus and Spyware Protection to Home User Assistance for better attention.
First try to do a System Restore to before all this happened, but if you succeed make sure you update Windows and McAfee straight away afterwards.
If that doesn't help try downloading, installing, updating (important) and running a full scan with the FREE version of THIS software. If it wont run in regular mode you should be able to do all that in 'Safe Mode with Networking' reached by tapping F8 repeatedly while booting up. It's #2 on the ensuing menu.
You can also try to restore file associations if the original problem persists after all the above. See: http://www.winhelponline.com/blog/file-asso-fixes-for-windows-7/.
It's kind of laborious to do this so I hope the above work.
Lastly, I would hope that this is Windows 7 SP1, if it isn't please update to SP1 a.s.a.p. as McAfee now only supports the latest version. There is help with that HERE.
Also please update Internet Explorer from 8 to 9 a.s.a.p. as it is more secure. Even if you use a different browser it is important to do this because various processes use it including McAfee.
I followed your instructions and was successful. Computer works fine now. Here's what I did:
1. Tried system restore, was unsuccessful (produced error message).
2. Downloaded, installed and updated Malwarebyte's Anti-Malware.
3. Ran full scan using Anti-Malware.
4. Purged infected items found in scan.
5. Restarted computer.
I then installed Service Pack 1 for Windows 7 using automatic update through internet explorer. IE 9 installed with the service pack.
Thanks alot for help.