Windows 7: Apps lose focus after 5s. Can't type.

Very peculiar problem that probably started with installation of a toolbar by mistake. Suppose I'm in chrome and typing in a text box, after exact 5s, the whole window loses focus and i need to click on the box again to regain focus and resume typing (you can understand how annoying this is).

I have tried these so far but failed to resolve:
1. Got rid of the toolbar
2. Ran MSE. It cleaned two security issues.
3. Created new user
Still, the same. No change.

I'm this close to reinstalling windows. Sincerely trying to save a day of my life by avoiding reinstallation.

Does this occur with ALL windows (chrome, MSword, etc.)?

Every single window, even task manager!

Sounds like some task (not a viewable window/GUI??) is waking up or something.

By "got rid of" do you mean simply UNchecking so that toolbar will no longer display (but still installed on PC) or did you do a full uninstall?

Full uninstall. Every single bit of it. All leftover files and everything.

There is a chance some window is waking up, i checked and cross-checked all running processes, there was nothing unusual.
I killed all 3rd party (trusted) processes like dropbox to see if one of them was the culprit, but again nothing.

Frustrated big time. I never had a issue with windows that i had no frigging clue about.

And as mentioned before, I'm not sure if the problem started with toolbar installation. I am just guessing. (The solution may not necessarily be centred around the toolbar)

Here is a screenshot that i took of the full scan by Security Essentials. The two threats were removed successfully.
Dropbox link: http://db.tt/YnCwDNOe

Let's think for a momemt. If I'm using IE (focus), if my email program (currently open) wakes up to check for email every 10 minutes, that doesn't steal focus from me. There usually has to be some WM_PAINT messages sent to a program whereby SOMETHING has to be rendered on the application's window.

I'm not at home (no access to Windows 7) but wonder if there's not something in Task Manager that can let you look at each process that's running and see what "state" it is at that moment (i.e. sleeping waiting for input, sleeping via a TIMER, running, waiting on I/O, etc.).

How does it behave if you boot to Safe Mode with Networking? If better then something is starting at boot that is causing the problem.

Advanced startup options - XP
Advanced startup options - Vista
Advanced startup options - Windows 7

Use msconfig to determine what is causing the problem

These are good tutorials on using msconfig in XP, Vista or Windows 7:
How to use msconfig in Windows XP
How to use msconfig in Windows Vista
How to use msconfig in Windows 7

Click on Start then Run, type msconfig and press Enter.
Click on the Startup tab, record what is currently starting then click the Disable All button.
Reboot and see if it runs better.
If yes then use msconfig to enable several items at a time till you find the culprit.

If no, start msconfig and click on the Services tab.
Check the Hide All Microsoft Services box, record what is currently starting then click the Disable All button.
Again, do a regular boot, see if it runs normal.
If yes then use msconfig to enable services till you find the culprit.

Once you've found the culprit, uninstall it or find out how to eliminate it from your system. Simply disabling it in msconfig is a temporary fix at best.
Enable everything else you disabled.

It's a long shot, but RESOURCE MONITOR (task manager, click PERFORMANCE tab, then CPU tab) has a "ANALYZE WAIT CHAIN" feature. If you pull up the CPU tab to list all processes, right-click on one and select analyze wait chain.

Most on my PC show as "running normally" except IE which shows "waiting for network I/O".

Maybe a corrupted file is causing Windows to behave like that:

SFC /SCANNOW Command - System File Checker