Strange IE problem

My mate's got an odd problem with Internet Explorer. He had me round last week because he couldn't log on to his internet banking, also his AVG anti-spyware wouldn't connect to the server to download an update. Early on in proceedings I deleted the temporary files after which his internet banking started behaving but AVG still wouldn't update. I said it might be a problem at AVG and left him to try it in a few days time.

He got me back round again yesterday because IE was playing up again. This is the odd bit. It's definitely connecting to the net. Most pages will load up but when you try to click on something (follow a link), most of the time on most pages nothing happens. The progress bar in the status bar moves - slowly - but nothing appears. One of his internet accounts he can log into (although it is a bit slower than nornal), another one he can't. He can see ebay's main page but can't sign in. There is definitely a good connection as I entered a web site address he wouldn't have visited before and it loaded no problem. So I don't think these are cached pages I'm seeing.

Things I've tried; Deleted temporary files again, did a system restore back a couple of weeks when things were working fine, upgraded to IE7 from 6, made sure Automatic Updates were enabled and up to date, switched off firewall and anti-virus. None of this makes any difference. All I can think of now is wiping the disk and re-installing Windows. Any less radical suggestions would be gratefully received.