My computer recently has developed a problem in the fact of I think spyware.

The desktop wallpaper is permanently posted saying:

Warning! Spyware threat has been detected on your PC.
Your computer has several fatal errors due to spyware activity.

Your IP address is Got error 127 from storage engine1 and via this address an unauthorized access was gained by another computer. It is strongly recommended to install an antispyware software to close all security vunerabilities.

Along with this message I am getting random popups in Internet Explorer and occassionally from my taskbar it gives me a warning that my computer is running slowly to use a spyware software.

I have run Adaware and Spybot on the system and also installed a new version of Mcaffe which all of them deleted quite a few bad files. However I am still having the problem with the wallpaper and popups in IE.

What code do you need in order to help me get rid of this problem? Where do you want me to get it from. Thanks!

You likely have a Smitfraud malware. Use the Smitfraudfix tool in the link below.
Run "option #1" and if it finds anything remove it by running "option #2".
http://siri.urz.free.fr/Fix/SmitfraudFix_En.php

Follow up with the two programs in links below that will remove the malware that accompanies the Smitfraud malware.
Install Super Antispyware. Run it in safe mode. Allow it to quarantine whatever it finds.
http://www.superantispyware.com/
Run the online scan for Bit Defender in normal mode. Allow it to quarantine whatever it finds.
http://www.bitdefender.com/scan8/ie.html

How to Start Windows in Safe Mode:
http://www.bleepingcomputer.com/tutorials/tutorial61.html