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trojan is screwing up my computer, blue screen memory dump..avira can't get rid of it either

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Hi! I am running Windows Vista sp1 and last week I sporadically kept getting the blue screen of death with the memory dump thing. I forgot to renew my antivirus because I've been so busy with school. I then discovered this blue screen was occurring mostly whenever I tried to do a windows update or windows defender update. I then downloaded avira free anitvirus and this thing (trojan) keeps any spyware program from connecting to the internet. Avira keeps recognizing it but no matter if I quarantine, delete, rename, ignore, or deny access it keeps screwing with my computer. I also already had spybot search and destroy and thought it was odd last week when it was unable to update everytime I attempted it, so then for some stupid reason I thought I could uninstall and then reinstall it, well this trojan kept it from connecting to the internet and I was never able to reinstall it. I'm out of ideas and it won't even let me create recovery discs so I manually backed up all my important files to DVDs in case of a system crash. I'm out of ideas (oh and I did try a system restore as well but it did not help either). I think I'm almost to the point of completely reinstalling windows which I'm not even sure how to do if it comes to that. Any advice than any one can offer is greatly appreciated.

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I don't know if it will help but avira identifies this c:\windows\system32\msqpdxwqsctmei.dll as the trojan TR/PCK.Krap.D.734
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