And all before coffee... you are hardcore.
No problem here
I use AVG and I had some weird behavior this morning with the auto update too. Nothing as bad as what you describe, but I was in the other room when it said Auto Update Complete and it caused the system to make 4 "Critical Stop" error sounds, one right after the other. When I got to the computer the Auto Update message had just popped up and was displayed over the screen saver. No other strangeness yet.
AVG changed its auto-update function maybe a month or two ago. Ever since then, the icon in the bottom right of the screen goes black and white sometimes -- it never used to do that. Usually a reboot will do the trick.
Before that, type in msconfig in start >run
on the startup tab, any items other than AV & anti spy ?
uncheck 'em
reboot
If tou have XP, turn off your auto-restore off prior to running any virus scans. If you don't, you'll just load up any buggyboos all over again.
Consider shutting off any 'auto updates' for any thing you run. That includes your OS.