need help...!!!

I recently got a pc second hand from a person who very rarely used it .They had it connected to the www from a phone line.We bought a Belkin wireless usb and connected it to our wireless network,Digiweb.
We ran a full AVG scan for viruses and spyware and found a load of stuff which was removed.
We decided to update it thru windows.com but when the "home page" opens when it is checking for windows/xp version a message appears that my security settings wont allow ActiveX to run.We have trawled through the microsoft site and tried all sorts of combinations of the security settings including swithing off the firewall (it's switched back on btw) but ......nada.
Nothing seems to work.
We are beginning to think that it is some sort of virus that is tricking us into switching off security so it can run riot with the pc.
It is XP home service pack 1.We cannot download SP2 or load any printers onto it.
We have gone back to system restore point which is the only point that was on the calendar.No difference.
Any ideas in simple speak (am not a techie) would be hugely appreciated.