The location of the file: C:\Documents and Settings\Stephen Hills\Local Settings\Temp\vxfwlb.exe
That is in your IE cache folder. All you need to do is dump the cache, and it will be gone. Maybe it will be gone. It depends.
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However, even with folder options set to 'show hidden files' I cannot find that file
Yeah, that's because it is a root kit (you did detect it with a rootkit finder). That means that your system has been modified in such a way that you can no longer believe anything that it tells you. For example, it is telling you that there is no such file, and you already know that it is there.
As I said before, maybe it will be gone, but maybe not. Infections such as these often employ sentinels that rewrite deleted files, or re-download deleted files, etc. Rule of thumb for a rootkit is to reformat because unless you have a snapshot of your system from before it was infected to compare with your system now, there is no way you will ever know if you have removed everything. And while you are trying to clean it up, it is busy stealing your passwords,stealing your bank card numbers, logging your keystrokes, sending out spam emails, or any number of other things.
It should not be connected to the Internet at all in its present condition.
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Sophos doesn't recommend cleaning it up
That is likely because it is hooked into other files, and Sophos does not want to be responsible for screwing up your computer.