I already have spybot and when i tried to open it, it didn't. As far as the hidden files and folders are concerned, i managed to find a tweak on the net. It was some registry editing and then i am able to see the hidden files/folders but i need to select that each time. Once i do it for a particular folder, and move to some other folder, it again hides the files.
Same thing happens with task manager and registry editor. I tried to enable the task manager and regitry editor through gpedit.msc and can do it for a moment after which the settings reverse back automatically.
This is some kinda USB virus, i had this same problem few months back.
I googled a lot on how to remove this virus, coz i didn't like to install XP all over again. So, I got a software called "Flash Disinfector". I guess it will set things right!!Download Link