I updated my Java file and seem to have an imbedded virus

I love games and updated my Java file and when I was done my games would not play and just blanked out putting me back to my desktop. I then tried to remove the Java file under remove programs, but it left a part of the java file on my computer that I could not remove. I loaded and ran AVG free and it reported that the Java file was infected and could not remove the bug as it was embedded. At that point I discovered that my restore points would not work. I have backed up most of my personal word files, favorites, and pictures. I then started deleting all of my old stuff that I didn't use and things that I had backed up, hoping to get rid of the bug. I have System Mechanic 6, Window Washer and the AVG free installed on my computer, as well as the 2002 Pro Office Group. I am using a 2002 Gateway XP. I also just purchased a Gateway Laptop that has a 64 Processor 3400+ at 2.2 GHz 1 MB L2 Cache, HyperTransport with 1 G of DDR and the 2003 Pro for Teachers and Students. I have not loaded anything on my notebook for fear of messing it up. I am knowledgeable with using all the office programs but have little knowledge of computers and how they work. Can you help me get rid of the bug; and can you tell me if it is safe to load and use any of my backed up work on my laptop? Thanks for any suggestions.
Littledear