Here is the problem description:
1. Was unable to access most of the websites through IE and Firefox. Though lot of the Indian websites worked (I am based in India). For example, I could reach http://www.google.co.in but firing any search did not work. Similarly some other sites also were accessible.
2. The problem was not seen in Netscape.
3. There were sudden pop-ups in IE warning of virus and then leading to some arbitrary sites.
Machine Configuration: Windows XP, SP2. IE 7.0.
Following few messages in the forums here, I installed Combofix, Hijackthis and Windows Restore Console. Ran the Combofix and it seems to have resolved the problem. The message suggested to still get the logs scanned by an expert and hence I create this message here. The Hijackthis log is attached and can later attach Combofix log if requested.
Thanks for the help