Sounds as if there isn't enough 'contiguous' free space for the swapfile, or the hard drive is simply filling up.

Your problem with 'defrag' could indicate viral activity, though. Then again, I've had precisely that without a virus!

Try running scandisk, then re-booting before running defrag.

It's not strictly necessary to defrag before installing new software, but it's a good idea afterwards! The reason is simple - during installation, files are copied and then deleted, leaving gaps of free space. Defragging eliminates these gaps.

Re-formatting does seem a bit extreme, but may be the only answer. You've been MicroShafted!