I have tried to DL the 7.0 and it asks me to restart my computer. Problem is that my restart is VERY slow and I usually have to end up choosing to START IN LAST WORKING CONFIGURATION MODE???

Something is keeping windows from updating & IE7 from loading and I found the missing IE7 file but it simply starts the download process again which leads to the restart option.
Ok, I still don't see much in your HJT log EXCEPT a LOT of items running in the background.

IE7 absolutely MUST restart the computer in order to complete the installation. You have been stopping that by choosing START IN LAST WORKING CONFIGURATION MODE which, in essence, is telling the computer to NOT complete the installation but go back to IE6 so, I think anyway, this may be why the IE7 is not installing. When completing an installation the start up will be slow because the final steps are being completed. BUT if IE6 was not working prior to the attempt to update to IE7 then the problem lies with Internet Explorer itself. You have not said if this is the case. IF this is the case, that IE6 has not been working, then this would be one reason you cannot update Windows. It needs Internet Explorer for updates, you cannot use another browser. Can you tell me please if it was "broken" BEFORE you tried to install IE7?
You are using AOL, which version of AOL are you using? AOL I believe comes with IE6 embedded in it, I did find some links in my search for an answer where some AOL users DID have a problem updating to IE7 because they were using the IE6 which came with their AOL program. I don't know if this applies to you or not.

When you are attempting the update to IE7 do you follow these instructions below?

1.Double-click the Windows Internet Explorer installation program. If you are prompted, click Run.
2.On the Welcome to Windows Internet Explorer 7 page of the installation program, click Next.
3.Review the license agreement, and then click I Accept.

If you do not accept the terms of the license agreement, we recommend that you do not click I Accept. (It doesn't say so but I believe that if you don't accept the terms then the installation cannot take place)

4.Click Validate to validate the Windows installation.

(Now, #5 is a key also to what might be your problem. If you are NOT doing what is noted in BOLD in #5 then this might be why the installation fails too. This was from a Microsoft page for persons having a problem installing IE7 and is the recommended work around)

5.On the Get the latest updates page of the installation program, click to clear the Install the latest updates for Internet Explorer and the Microsoft Windows Malicious Software Removal Tool (recommended) check box, and then click Next.
6.When the installation program finishes, click Restart Now (Recommended) to restart the computer.

Installation, including the restart, of IE7 on dial-up can take upwards of 30 minutes OR more.

My Norton AV 2007 and NSW will not update either. Even when I use the removal tool it says restart and and when I do, same as IE nothing has changed and Norton says Restart again etc... ?
I use Norton Anti-virus and most of the time it will just update but on occasion it will require a restart and then that restart is slow because it is updating files, updating the registry, etc. I cannot say for sure this is the reason you had this problem with the Norton updates it could be that the program itself had become corrupt and therefore it couldn't update.

The only odd program I saw was called OTTO an application?
You don't say WHERE you saw this odd program.
The only program I could find called OTTO is a web based mp3 database and jukebox which is used to organize a large number of music albums. If you don't use this or know what this is uninstall it.

To see if you can find the Boot Error noted in the AVG scan you might try going to Control Panel, Administrative tools and checking Event Viewer, Applications and also System. See what errors are noted there. Double click on the error and it should tell you what caused the errors.
I do only have the FREE version of AVG, I'm not sure if that makes a difference.
That wouldn't make any difference with any of what you are experiencing. It is a perfectly good program. Just remember to update it.
You do still have multiple anti-spy programs running too. You don't need that many.