Whether its W7 or XP, there is the System Restore facility. Easiest way to find it is to Click Start, the n click Help, then tell it System Restore. This should take you to a screen with the "restore to a previous date" option - just pick a highlighted date on the calendar it shows before the troubles started, follow the instructions, have a brew, it should be OK when you come back.
I don't think you have been hacked - for the past several years the bad guys have not sought to damage machines, they tend more to subtle ploys that allow them to get at your money without you noticing. Having said that, there are scareware vendors who claim you have a nasty and try to sell a "cure" that actually puts their real, profit making, malware on board.