A dangerous Windows vulnerability has been discovered, and it involves all current versions: Windows XP, Windows Vista and Windows 7.
The flaw, according to Microsoft, has to do with how Windows handles shortcuts, which are links to programs that normally reside on the desktop. The key factor in this case is that the vulnerability is most likely to be exploited through use of flash (also called thumb, or USB) drives.
If you're victimized by this attack, the hacker could take complete control of your computer, and do anything he or she wanted, including installing software, creating new users, and so on.
Microsoft doesn't yet have a fix for this; it lists several workarounds to mitigate the problem, but I don't recommend you do any of them, especially the one that involves altering the Windows Registry. The Registry shouldn't be touched by anyone not very familiar with Windows and its underlying technology.
Frankly, I don't think any of Microsoft's solutions are very good right now, although disabling the WebClient service (instructions are in the Microsoft bulletin) could help. I would avoid using flash drives until a solution is found.