As you suspect, this could be spyware or a virus. Do you have antivirus
installed, with current definitions? Have you done a full scan of the
machine, perhaps in Safe Mode, with that antivirus?
If you don't have an up-to-date antivirus with current definitions
installed, consider an online scanner such as the one at
http://safety.life.com --this one can run in Safe Mode with Networking, if
necessary.
I've troubleshot a couple of machines for this symptom recently: In one
case the issue was simply lack of ram--ram requirements change with the
software load over time, and such things as an update to an antivirus suite
may push performance below the bar you find reasonable--how much ram is in
the machine?
If you don't know how to find this out, or want to cost out increasing it--
http://www.crucial.com can both test the machine to see how much ram is in
it and tell you how many sockets there are, and what your options are for
increasing the available ram.
In the other case, the culpret turned out to be the driver for an HP
Laserjet 102x series printer. So--something like a poorly behaved driver
for a printer or some other peripheral can affect performance significantly.
So--on to your original question: Was Windows Defender, or a beta version
of it ever installed on this machine previously?
Let me see if I have the scenario right: You downloaded Windows Defender
(from Microsoft's site??) to the desktop, and saved it there. Then you
double-clicked that saved installer file, and got this error message
referencing the path to "My documents?"
If you can replicate this error message and see if you have it word-for-word
correct that might help--it sounds like something I've seen before, but I'm
not remembering the fix and Google has failed me so far.
One possible fix involves using the Windows Installer clean-up utility from
Microsoft, but I'd like to pin the error wording and possible history of old
installs down before recommending that.