bryank - did you try disabling the auto-decide sandboxing feature, or could you just not get to it even in safe mode? I didn't have a problem with my XP or Vista systems, but they are 32-bit, and I think the really nasty issues seem to be on 64-bit systems. After I disabled auto-decide sandboxing, my systems came right back to life as if nothing happened, although I am noticing that they run more slowly at times. I ended up taking Avast off of my old reliable netbook because it simply could not keep up with Avast's demands and still run other things.
I agree with you that this new Avast 7 "feature" (bug?) poses a non-trivial issue for some users.