Annoying computer problem (help please)

 So my brother was at his girlfriends house the other day and tried to install battlefield 2 demo on their computer. he was on gamershell or megaupload. one of those sites. he clicked the download link and it tried to install a (downloader/installer) program. he installed the program that was claiming to download battlefield 2 demo.after he installed the downloader no windows programs would open, you can click on the start menu and my documents will open up but if you go to run and type msconfig it says that it cannot be found. everything does this and the computer is completely unusable. it is running windows xp SP3 with all latest updates. 

System Restore

forgot to add that system restore does not work either it will not open even in safe mode

EDIT: got system restore to open and it says its restoring but when the computer restarts it says unable to restore system (does not give reason).

Also, this pc has iolo installed. idk if that makes a difference

mmmmmm....viruses.

Boot into safe-mode...F8 and run your favorite anti-virus program.

Boot into safe-mode...F8 and run your favorite anti-virus program.

--Anna--

Cannot open anything in safe mode either.

Sounds like you may be f***ked. See if you can download Avast and have it run a full system scan; this will take about 3 hours.

Download a boot CD from any free antivirus and run that.

The best option for an infected machine is to simply reload the OS.  Even if you get the computer working again with a virus scanner you will never know if it found everything.  Even the best virus scanners only will catch around 90% of the viruses out there.  People code new ones up constantly.  Better to have piece of mind and format the hard drive that way you know you got rid of every virus on it.  Other wise you will always be wondering if it's safe to use your credit card or login to your online games.  Always a chance that a backdoor virus is still on the machine allowing them to capture what you type.

I reloaded the OS but kept the files. once i got into windows i ran malwarebytes. found nothing so saved the data and problems solved. THanks alot ! :)

Malwarebytes only looks for malware.  You need to run a virus scanner as well.  Run MSE or Avast.