|Yes to #3, I did not know of this product but AVG is a trusted source and certainly worth a try.|
Then boot to safe mode (tap F8 repeatedly at start) with Networking, download Malwarebytes, install, update, and run to make sure you are clean.
My daughter got one of these while I was at work and I had her do an immediate shut down until I got home. I booted directly to Safe Mode but antivirus, malwarebytes, and system restore only got me one of these fake warnings from the infection. THEN I took out my Windows 7 Repair Disk (I tell everyone to make one), launched the repair and did a system restore to two weeks back (well before the infection) from the repair disk (important tool). When the restore was done, I restarted into safe mode and ran multiple scans (Malwarebytes and Webroot, both updated) and all was clean, I restarted in normal mode and did windows update to be sure.
Try this method if the above one does not work for you. If you have not made a Repair Disk yet, you can make one from another Windows 7 machine as long as they are both the same type (32bit or 64 bit) and use that.
Let us know how things go.
You have to be a little bit crazy to keep you from going insane.