I would like to ask you to provide us with all AVG logs for closer analysis.
In addition, please gather and provide us with all files from this folder*:
C:\Documents and Settings\All Users\Application Data\avg2012\cfg
Then please re-check 4th situation in this thread, if it can help you, but please after the files gathering for our analysis.
* Some folders could be hidden by default Windows settings. To view hidden files and folders please read How To Display Hidden Files And Folders
I was asked to restart computer for update with avg2012 free edition but now will not connect to internet. Keeps asking to restart for update!!