windows explorer can't delete, copy, move, rename files

I have just encountered this problem. Windows Explorer
hangs the entire system when I try to move, copy, delete,
rename any files. Scandisk seems to go into a loop.
Defrag also goes into a loop. The entire system will hang
up if I right click an icon on my desktop. The only way
out of the hangs is to do a power off and back on and the
scandisk that runs because windows did not properly close
seems to work fine as does defrag if I run it from a DOS
prompt. I have scanned for a virus and found a file named
winupd.exe to be infected. It was deleted but the problem
persists. I have re-installed win98 and applied all
maintenance for the product that I have. Any ideas, I'm
lost.

Len