Most anti-malware programs can be configured to do either a default action upon detection, or to ask the user what it should do. The most common thing for programs that are either configured not to ask or are non-customizable to do is to attempt to clean the file. If a file cannot be cleaned or may not be needed, then the program may choose to quarantine the file. Most programs will choose quarantine over deletion due to the possibilities of false positives and the ease of recovery from quarantine vs. undeletion. Be aware that this action may change based on the signature of the infection detected. If the file was created entirely by the malware for no other purpose than to be run by the malware (eg, it was not a legitimate system file that got virus code injected into it) than the anti-malware program may choose instead to simply outright delete it.
As for what type of anti-malware option is best, a lot comes down to personal preference and ease of use. No anti-malware solution is going to be 100% effective at catching all malware, and even with a multi-layer approach only about 70-80% of malware is caught according to some published reports. You best option is to choose something with a good detection rate, and that has a feature set that you feel you can best use. I like Panda Cloud AV on my home machines. It is light, takes up almost no system resources, has cloud based intelligence (for protection from emerging threats), and is free. :) I have used Avira, Avast, and AVG as well in the past, and all performed exceptionally. Avira has add screens that show up on every update with the free version, and Avast seemed to be a little resource intensive, but not by much. I dislike Norton due to the fact that it tries to hard to do too many things. As a result, system resources suffer and one mis-configuration can cause a lot of headaches. McAfee, while better, is also heading in that direction.
As for my Dream-team of anti-malware, I would choose Panda Cloud AV (http://www.cloudantivirus.com) for my Category I choice. As for my Category II choice, I like Spyware Blaster and Spyware Guard (also from Javacool software, the makers of Spyware Blaster). Spyware Guard offers the resident protection, Spyware Blaster offers the browser protection. Just remember to update Spyware Blaster once a week unless you pay to upgrade to Pro and the auto-update feature. Spybot, AdAware, and MalwareBytes are all programs that I have used to clean already infected machines, but I have not tried them on a proactive basis, and as such, I cannot comment on their effectiveness. I have not used Spyware Terminator or Threatfire, although as a zero-day, behavioral blocking program, Threatfire may result in more false positives, simply due to the nature of its detection algorithms.
As for which programs from Category II have to be run manually and which are resident, Spybot, Spyware Blaster & AdAware all have resident protection built in, although some features are disabled in the free versions. Spybot and AdAware also have on-demand abilities as well. MalwareBytes is on-demand only in the free version. The purchased version unlocks the resident features. Again, since I have not used SpywareTerminator or ThreatFire, I cannot comment on them.
Sorry for the long answer, but I hope this helps you choose a solution that fits your needs! Let me know if you have any other questions.