First a few notes on terminology:

Malware, short for malicious software, is software designed to infiltrate a computer system without the owner's informed consent. The expression is a general term used by computer professionals to mean a variety of forms of hostile, intrusive, or annoying software or program code. The term "computer virus" is sometimes used as a catch-all phrase to include all types of malware, including true viruses.      

A computer virus is a computer program that can copy itself and infect a computer. The term "virus" is also commonly but erroneously used to refer to other types of malware, adware, and spyware programs that do not have the reproductive ability. A true virus can only spread from one computer to another (in some form of executable code) when its host is taken to the target computer; for instance because a user sent it over a network or the Internet, or carried it on a removable medium such as a floppy disk, CD, DVD, or USB drive.   

Adware, or advertising-supported software, is any software package which automatically plays, displays, or downloads advertisements to a computer after the software is installed on it or while the application is being used. Some types of adware are also spyware and can be classified as privacy-invasive software.

Spyware is a type of malware that is installed on computers and collects little bits of information at a time about users without their knowledge. The presence of spyware is typically hidden from the user, and can be difficult to detect. Typically, spyware is secretly installed on the user's personal computer. Sometimes, however, spywares such as keyloggers are installed by the owner of a shared, corporate, or public computer on purpose in order to secretly monitor other users.

Bots (Robots)  applications that run automated tasks over the Internet.  May or may not be malicious, when malicious, they typically take over your computer to use it to attach other computers over the internet.  It may also include a key logger to steel your passwords.

A firewall is a part of a computer system or network that is designed to block unauthorized access while permitting authorized communications. It is a device or set of devices which is configured to permit or deny computer applications based upon a set of rules and other criteria.  Note, typical anti-virus software does not cover this threat unless they are called security suites.  Microsoft has and adequate one included all operating systems from XP on.
Firewalls can be implemented in either hardware or software, or a combination of both.

A rootkit is a software or hardware device designed to gain administrator-level control over a computer system without being detected.

Keystroke logging (often called keylogging) is the action of tracking (or logging) the keys struck on a keyboard, typically in a covert manner so that the person using the keyboard is unaware that their actions are being monitored.

Avita Free anti-Malware, top rated by CU in their June 2010 Issue.  Note, they will try to sell you the paid one so be careful.

Free AVG Anti Virus (Anti-Malware)  from  http://free.grisoft.com/doc/1/  This one is the most popular free anti-virus software but ranked 3rd in the CU Jun e1010 Issue.  This program will not run in the safe mode with networking and probably not in the basic safe mode either.  This is not normally a problem.
Zone Alarm Pro (a pay program that I use) will run in the safe mode with networking but not the basic safe mode.

Free Anti-Virus programs

Microsoft has a product called Microsoft Safety Scanner that was recommended by Comcast and it worked well for me.  It is intended to be used in conjunction with your regular anti-virus software.  You can download it at:  http://www.microsoft.com/security/scanner/en-us/default.aspx.  The file is msert.exe.
You run it when you think you have a problem.  It does not run in the background and the version you download is only good for 10 days.  Note:  There are both a 32 bit and 64 bit versions.  If you will be running it on the computer you download it to, then it will automatically pick the proper one but if you plan on copying it to anther computer, then you may need to specify a different version.  9/7/2011

Free AVG Anti Spyware from http://free.grisoft.com/doc/20/us/frt/0
Note this product does not do automatic updates, you have to request one each time you want it.
Unlike anti-spyware and firewall software, it is permissible to run multiple Anti Spyware programs.
Windows Defender is an anti-spyware software that comes with Vista and runs fine with this program.

Microsoft Security Essentials was ranked 2nd for free anti-virus software by CR June 2010.  http://www.microsoft.com/security_essentials/default.aspx  It checks for viruses and spyware but does not include a firewall so you will need to have Microsoft's one turned on or use another one.   Initial reviews indicate it does not slow the system down much but performance is mediocre.

Trend Micro HouseCall Runs a scan only when you launch it.  Can be run in conjunction with other anti-virus software as a double check.  Because it does not run all the time, it is not a good candidate for your basic anti-virus software.  Also removed the bad stuff sometimes.

Microsoft has a product called Microsoft Safety Scanner that was recommended by Comcast and it worked well for me.  It is intended to be used in conjunction with your regular anti-virus software.  You can download it at:  http://www.microsoft.com/security/scanner/en-us/default.aspx.
You run it when you think you have a problem.  It does not run in the background and the version you download is only good for 10 days.  Note:  There are both a 32 bit and 64 bit versions.  If you will be running it on the computer you download it to, then it will automatically pick the proper one but if you plan on copying it to anther computer, then you may need to specify a different version.  9/7/2011

Panda Cloud Free Antivirus  May 2010 PC Magazines recommendation for free AntiVirus, Needs internet connection.

Free one time Scan of your computer to see if any Viruses are active (Was called NanoScan, now called ActiveScan by Panda):  http://www.pandasecurity.com/activescan/index/ It takes about an hour to run.  On my machine it would run from Internet Explorer but not Fire Fox.  To get it to remove viruses, Trojans and worms, you must register it but there is not cost involved.  To get a version that also removes spyware, rootkits, hacking tools, and spy cookies.  The cost is $12.95/6 Mo.   This program is not a substitute for a regular set of spyware type programs as it only runs when you log on and run it.  I had troubles getting the full version to run so I would not necessarily recommend it.

Free Firewall from ZoneAlarm http://www.zonealarm.com/security/en-us/zonealarm-pc-security-free-firewall.htm
But if you use it, remember to turn off Microsoft's Windows Firewall which is included in XP, Vista and Windows7

K9 Web Protection  Free   parental control software,  PC Magazine April 2010 recommendation.

Pay Anti-Virus programs

Spyware Doctor with antiVirus   $39.95 direct,  PC magazine first choice for anti-spyware suite in May 2010  Also good for malware removal

Eset Node 32  Anti-virus $39.99/Yr with 30 day free trial.  http://www.eset.com/products/nod32.php This is a particularly good program for computers that are being bogged down by their current anti-virus software.  Lags behind in all other categories.

Norton Internet Security, Norton 360 Version 4.0,  Norton AntiVirus Total Anti-Malware and just the Anti-Virus software from Norton.
It is highly rated but I avoid it because it has messed me up too many times doing things like updating the operating system.  If it gets messed up, it is a real job to get rid if it.

McAfee Total Protection, McAfee AntiVirus Plus, Not as highly rated as Norton but definitely worth a consideration.

Webroot AntiVirus with AntiSpyware;  Top rated basic anti-spyware program.

Net Nanny ($39.99) or Net Nanny Home Suite  ($49.99) are highly rated programs to place parental controls on a computer.     http://www.netnanny.com/

See K9 Web Protection above for a free parental control program, not as good as Net Nanny but cheeper.