Since you say you are running Windows Defender then this tells me that you
are not using the Windows Millennium operating system, for users of which
this newsgroup is intended. I suspect you are running XP or possibly
Vista.
Your system has unfortunately been infected by malware known as
Antivirus2008, this is anything but an antivirus application and is
widespread on the net and lurks on many compromised web sites. The
infection can take many forms from the relatively trivial to sufficiently
major that the only sensible recourse is to reinstall the operating
system. One of the many characteristics of Antivirus2008 (or its namesake
Antivirus2009) is that one of the first things it does is destroy system
restore and also the ability to install updates from the Windows Update
site. Note that the spyware message you are seeing is not from the
operating system or McAfee but instead from Antivirus2008 itself.
> 4. I serached for RESTORE in C:\WINDOWS\SYSTEM and unable to find
> that.
In both XP and Win Me system restore is run from the executable rstrui.exe
and in XP is located in the Windows\system32\restore\ folder and in Win Me
in the
> 5. Statemgr.exe is missing its not there in C:\Windows\System
> 6. Even smgr.dll is not yhere in C:\Windows\System.
Neither of these files are part of the XP operating system.
There are a number of good sites on the net that are designed to help
users remove Antivirus 2008 such as
http://www.spywareremove.com/security/antivirus2008-removal-instructions/
but note that removal can be difficult and becomes harder the longer you
leave it as it has a nasty habit of inviting all sorts of other nasty
friends to join the party including some very nasty rootkits. A good
place to go and get one to one help is the Parasites - Adware, Spyware &
Other Scumware forum at http://aumha.net/

Signature
Mike Maltby
mike.maltby@gmail.com
> Please help
>
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>
> Thanks,
You might want to try downloading and running the tool from Malwarebytes
(http://www.malwarebytes.org/). Using the tool is free, you only have to
pay if you go on to install it and want to use it for realtime protection,
with scheduled scanning, and scheduled updating. I have used the tool on
a number of occasions to successfully remove variants of Antivirus 2008
and 2009.

Signature
Mike Maltby
mike.maltby@gmail.com
> Please help
>
[quoted text clipped - 37 lines]
>
> Thanks,