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.
must be anti-virus terrorists.