I let a buddy of mine borrow my laptop for a few hours only to find it come back with a porn clip (thanks, jerk!) that WILL NOT go away.
If I right click on it then the menu that comes up only has options for:
Play
Add to WMP List
Add to Burn List
Open With
Send To

If I hit the delete key then nothing happens. I don't even get an error but the file stays put.
I tried to boot into safe mode and delete the file but again, nothing happens.
I scanned my system with trendmicro housecall, avast, nod32, windowsdefender, ad-aware & a few others. I tried a few file shredding utilities but they all come back saying that it isnt a valid file. I ALSO tried a few renaming utilities and they say the file is not a valid file name.

I am lost here, I don't notice anything new running under my windows processes.

Any help would be immensely appreciated!

Have you tried renaming the file, then deleting it?
Name it anything you want, like trash, old, useless, ........ whatever.

Here are a couple of programs, you can try:
Unlocker
Eraser
Delete Doctor

There's also this Microsoft Knowledge Base Article that might be helpful:
How To Take Ownership of a File or Folder in Windows XP

Do you have these two anti-virus programs installed and working on your system at the same time? You can have more than one anti-virus program installed on your system as long as only one of them is actively running and providing real time protection. The other should only be used as an on demand scanner. However, even when one of them is not running, problems can still arise when the active anti-virus detects the non-active one's definitions or quarantined files.

The concern with using more than one anti-virus program is due to conflicts that can arise from them both running together at the same time in real-time protection mode. Anti-virus software componets insert themselves into the operating systems core and using more than one can cause instability, crash your computer, slow performance and waste system resources. When actively running in the background while connected to the Internet, they both may try to update their defintion databases are the same time. As the programs compete for resources required to download the necessary files this often can result in sluggish system performance.

While operating in real-time mode, each program will often interpret the activity of the other as a virus and there is a greater chance of them alerting you to "False Positives". Further, if one AV finds a virus and then the other also finds the same virus, then both programs will be competing over exclusive rights on dealing with that virus. Each piece of AV software will attempt to seize the offending file and quarantine it. If one AV finds and quarantines the file before the other one does, then you encounter the problem of both AV's wanting to scan each other's zipped or archived files and each reporting the other's quarantined contents. This can lead to a repetivite cycle of endless alerts that continually warn you that a virus has been found.

If your running Win XP/2000, I also recommend that you download and scan with Ewido Anti-Spyware v4.0 in "SAFE MODE".
Print out the Ewido Install and Scan Instructions.