I've come across a few PCs in the past month with the Antivirus XP 2008 problem. Basically its some spyware that fakes your Security Centre to look like there's a problem and needs fixing. It looks very authentic. There's a very thorough write-up at The Register, Anatomy of a Hack.
Two of the infections I saw had got in past AVG. One had 7.5 Free and the other had v8 but slightly dated definitions - unlucky timing, I wouldn't hold it against the folks at AVG. My AVG 8 Pro spotted the .exe as soon as I copied it over to the PC.
I've heard of a couple of cases where people have had to put hours into extracting the bad and getting their PC back up and running - should have called Redleg tech support first ;-) Best fix I've come across has been the AntiMalware product from Malwarebytes. You can find it over here.