I am worried now- is the free AVG not sufficent?
AVG Free is an excellent piece of AV software. I've been using it for a number of years (I think, it certainly seems that way... couldn't be sure how long though) and have recently installed it on a new machine (I've no connection with AVG, but I do have connections to other AV providers through family [and associated discounts etc.] and still use AVG Free) and have yet to have any virus problems.
You're question re "sufficient" depends on what you are looking for. Some of the commercial AV software products provide a lot more tools than the AVG Free product (as outlined in some of the previous posts... e.g. identifying tracking cookies).
However, most/all of the additional benefits of the commercial products can be picked up by using additional free software. Spybot Search and Destroy is a great product for identifying spyware/malware, Spyware Blaster is also a great product (more pro-active, block the nasties before they get to your PC rather than just identifying/removing them). Do a search on the net and you'll find any number of free security tools which can be run alongside your AVG product (many of them identified in the key posts here on AAM).
To set up a "safe" / "clean" machine you need a number of products, not just AV software.
A good firewall is probably the most important (Zonealarm or Comodo [if on Vista this is one of the better compatible firewalls IMHO]). Next would be a good AV product (AVG Free is a great choice, but lots of other options [both free and pay] available). These are the ones which can cause compatibility issues, so only have one firewall and one AV product installed on a machine.
After that you can add literally hundreds of additional security tools depending on how far you want to go with the safety. I'd certainly suggest using Spyware Blaster (I like the idea of blocking rather than removing) and running a Spyware checker (Spybot or many others out there) to make sure nothing has gotten through. In recent times I have spotted that many of the sources that originally praised Spybot are now suggesting that it's slightly outdated and that other tools (I seem to remember "Spyware Terminator" getting good reviews - but I've not used this myself to comment) have taken over due to the more pro-active nature.
It can all seem a little confusing, but it's not as bad as it seems. Once you have a decent firewall and AV setup (and switch IE for Firefox ;P) you're well on the way.
A read through the sticky,
Helpful links for a clean PC, is a good starting point for picking up information.