It's a scam, and they're trying a new way to scare you into giving them money; but it is also a malware infection. Download, install, update and do a full scan with either SUPERAntiSpyware (SAS) or MalwareBytes Anti-Malware (MBAM) (or both, even -- but one at a time), and let them remove whatever they find. Make sure you turn off System Restore before you do this. You'll most likely need use Safe Mode, and you may need to download them on another computer if your internet access is compromised. You may also need to run rkill to kill the malware process, and maybe rename the SAS and Malwarebytes executables' file names as well.
SAS download: http://www.superantispyware.com/downloadfile.html?productid=SUPERANTISPYWAREFREE&rid=3324
MBAM download: http://www.bleepingcomputer.com/download/anti-virus/malwarebytes-anti-malware
Rkill download: http://www.bleepingcomputer.com/download/anti-virus/rkill
There are excellent tutorials on this at Bleeping Computers:
SAS tutorial: http://www.bleepingcomputer.com/virus-removal/how-to-use-superantispyware-tutorial
MBAM tutorial: http://www.bleepingcomputer.com/virus-removal/how-to-use-malwarebytes-anti-malware-tutorial
Rkill tutorial: http://www.bleepingcomputer.com/virus-removal/how-to-use-malwarebytes-anti-malware-tutorial#rkill
Once it's cleaned up, install a good hosts file to help block unwanted popups, parasites, adware and spyware. You can read about, download and install an excellent one from http://www.mvps.org/winhelp2002/hosts.htm This hosts file blocks hundreds of known malicious URLs. I've been using one from this website for several years now and rarely get popups and annoying ads. Revisit the page every couple of months as it is updated from time to time with new sites.
Also, never use an administrator account for day-to-day use. Always use a Standard or Limited account. This will limit the amount of damage these things can do, and prevent them from installing by themselves.