I would download an external boot cd such as Dr.Web or Kaspersky and run those. Even better would be MS ERD Commander if you have it. I think you need to attack this from outside of the operating system.
Use the Microsoft Standalone Scanner with the latest updates installed downloaded onto a USB drive. I would then also use CMD to repair the MBR just in case all of which are on ERD Commander.
Yes it should do, you start the standalone scanner which will then give you the option to do an online update, or provide the update file. I usually have the file on my USB toolkit which I plug in, browse to the file and let it update.
I managed to delete the hosts file through ERD Commander and create a new one.
Once I restarted I could get the internet but only through Windows Explorer. When I clicked on Mozilla Firefox or IE, nothing would happen. I have reinstalled Firefox and all is working well. I am just away to reinstall IE and do some further scan to check the PC is clean.
Also I have restarted and nothing has came back? Fingers crossed.