Don't want to interrupt your problem solving, but I can validate existence of your symptoms. What you are describing is happening in my system as well (avast! free edition, and Windows 7).
I have not done the extensive resets that you have. But if I do a hard re-boot, start-up in Safe Mode, uninstall avast!, and re-install avast!(pulled down uninstall file, and latest install through another working pc to flash drive, and transferred over to the effected pc) the machine comes back to normal operation...
...Of course I am not implying this is a solution, only further evidence (I think) that your diagnosis of an avast! vs. Windows 7 conflict has merit.