This scenario is being played out on countless computers daily. Microsoft has identified this type of worthless program as one of the biggest threats PC users face today.
How to deal with these pop-ups is a subject that changes daily, it seems. It used to be that you could open Task Manager and kill the Internet Explorer process to eliminate the risk. Now, that may no longer be possible. Sometimes these rogue programs will leave bits of themselves present, even when you've used Task Manager, and you'll be seeing new pop-ups soon after. Recently, when a user has come to me with an attack such as this, I've had success by just turning off the PC. In those cases where I've done this, deep scans after powering back up have shown no traces of anything connected with the rogue software.
Therefore, the advice I offer is somewhat more generic, and more focused on prevention.
First, make sure that you have a reputable antivirus/antispyware program installed, and that it's absolutely up-to-date.
Second, make sure that Windows is up-to-date on its own patches, and that commonly used programs such as Flash, Acrobat Reader, Quicktime, and Java are updated as well.
Third, consider using an alternative browser such as Firefox (the most recent version), Chrome, Opera, or Safari, in place of Internet Explorer. If you use Firefox, make sure that you're using extensions such as NoScript and AdBlock Plus to provide extra protection from compromised websites and the junk they sometimes spread. The bottom line here is that no browser is without vulnerabilities, but some (with tweaked settings and/or extensions) can be safer than others.
Fourth, don't accept the old recommendation that if you keep away from "questionable" websites, you'll be safe. Mainstream websites such as the New York Times, CNN, and others have been the means of badware being distributed--not intentionally, but through compromised ad server networks and so forth. The bottom line is that you can be attacked even from the most well-known sites.
Finally, make sure that you have current backups of any files you want to preserve. This is something that a lot of us have lost sight of over the last few years, particularly as our hard drives have gotten larger and we've put more data on them. External or network-based hard drives, though, have never been less expensive, and there's no excuse for a computer user not to be backing up personal files anymore. If you can afford a computer, you can afford the means to preserve its data in the event of a PC mishap.
Efforts are being made to put the purveyors of rogue antimalware out of business, but as with so much else on the internet, these people are often very hard to track down and made to account for their crimes. We can hope that these efforts have more success in the future, but for now, the main burden of defense is upon us as individual PC users.