AVG blows. I've seen AVG let its operating files get infected, and it couldn't delete them... because it was using it.

And let's not forget the time where AVG flagged an important OS boot file as a virus, deleted it, and on next boot 250,000 people had a corrupted and non-working OS.

Viruses can come from ANYthing nowadays (not just downloading). My suggestion is to fork up a little extra money and purchase Webroot Spy Sweeper with Antivirus, or Kaspersky.

My guess was is that iTunes was open when you got infected, and whatever infected you latched itself to all open processes.

EDIT: And because you lost iTunes, doesn't mean you lost your music. All iTunes is is an organizer, your music is stored on your HDD, most likely in My Music/iTunes Music.