The way I've cleaned machines for my friends and family has been this:
1. Make a full backup of the infected machine. My preferred tool is Clonezilla. This is insurance, so that if you make a mistake you can always recover your data. Reasonably large-capacity, external drives (USB and/or eSATA) are available for under $100.
a) Download Clonezilla and burn it to a CD
b) Boot to the CD, backup all partitions to the external drive.
2. Download several antivirus/anti-malware tools and either burn them to a CD or put them on a thumb drive. My favorites: Malwarebytes, Gmer, Trend Micro's Housecall, HijackThis!, Rootkit Revealer
3. Boot the infected machine to safe mode.
4. Run Gmer and/or Rootkit Revealer to see if there are hidden services. Remove any hidden services.
5. Run Housecall (or other stand-alone virus scanner)
6. Run HijackThis! This program is somewhat intimidating, but there are places where you can post the logs to get help. Also, you have a full backup from step 1, so even if you mess something up, it can be fixed.
7. Run Malwarebytes. Frankly, I can't remember if it will run in safe mode. You may have to boot back to normal mode.
8. Reset TCP/IP.
A. Boot to normal mode.
B. Run a command prompt (Start->Run->cmd->OK)
C. Run the command to reset TCP/IP (netsh int ip reset c:\resetlog.txt)
9. At this point, it's time to see if the machine is working. See if you can browse normally. See if you can download a virus scanner. (Microsoft Security Essentials, AVG, etc.) Download, update the definitions, and run a full virus scan.
10. Make another backup! Schedule regular backups! If you have stuff that you can't recreate (pictures, videos, your unpublished novel), then get an offsite backup such as Carbonite or Mozy!
Any tweaks to this procedure are appreciated. This is just what I remember going through the last time my mother-in-law's laptop was infected.
Other good tools: ComboFix, Spybot Search & Destroy