Welcome to the Windows 7 Forums! newnoiseimage
And unfortunately the world of "drive wipes"! since you will likely need a 3rd party drive tool to nuke the infected primary right off of the drive unless you find a way to nuke the virus instead! Apparently it left something on the drive to prevent a reformat or you haven't taken quite the right steps.
Your best move now providing there are hardware issues like worn heads or bad sectors on the drive not knowing how old the system is would be to use a security tool in order to see a complete drive wipe. This would mean creating a totally new primary afterwards for the clean install to go onto.
Eraser is one free open source tool used for cleaning drives on systems you plan to sell or donate to remove all traces of personal data. Browse Eraser Files on SourceForge.net
Other secuirity tools are also available as well.
Another open source program which will remove the present primary as well as see a new one replace it all in one session is a boot live from cd Linux drive tool GParted. GPARTED DOCUMENTATION - GENERALITIES
The latest stable 0.5.1-3 release is available at Browse GParted Files on SourceForge.net
Once booted live from cd or even when writing the iso image to a usb flash drive you can opt to simply right click on the existing primary and select the format option there as well. An entire drive wipe also means losing any data on it as well as insuring no trace of the virus remains.
These are the options where GParted or another drive tool is used. The initial reformat with the 7 drive tools still should have done the job however. The 3rd party tool would see if the disk or optical drive is having a problem.
As far as a bogus av program a few of those have surfaced recently with a few articles published on them. If you don't see an av program listed on a comparison page between programs it's either one many are not familiar with like VIPRE not seen in evaluations between Norton, McAfee, etc. or "Bogus".