If System Restore does not work correctly from Windows, run it from the booted Win7 DVD or Repair CD.

Try changing to MS Security Essentials or Avast5 free editions with WIn7 Firewall which avoid many of these kinds of problems.

Make sure your Computer>Properties>System Protection is always turned on for the OS drive (only). Hit Configure button to apportion more disk space so points last longer.

I would still install, update and run the Malwarebytes Full scan to get the definitive answer on infection - don't you want to know>?