I'm very interested in free software, and security is an issue these days. You not only need antivirus protection, but also antispyware protection and a firewall. The antispyware front has not changed much, especially in the free software department. Here is my current recommendation of free spyware protection for Windows computers.
Antivirus protection and spyware protection both should have two components: removal and prevention. With virus prevention, you can only select to use one software at a time, but with antispyware it's "the more the merrier." In terms of free spyware protection, I can only recommend three options at this time, and only one has adequate prevention measures.
For Every Day Protection
To prevent spyware infection on Windows XP computers, try Microsoft AntiSpyware.
Currently in beta, the software is being released as version 1.0 in September with few changes, and will remain free for Windows XP users. It does a passingly good job at preventing spyware; you'll still need to apply common sense, but your brains and MSAS should be sufficient to keep you spyware-free.
For Removal of Spyware
MSAS includes spyware removal, of course, so run it as well. However, I have found that Spybot S&D and Lavasoft Ad-Aware SE PE do very well at removal. Be sure to install all three, run MS Antispyware, then Ad-Aware PE, then Spybot S&D. I would do that once a week. For instructions on running the various programs, see the Instructions Links below. I would still use only one antispyware and antivirus running constantly (MSAS), and run the other anitspyware programs once a week to remove anything that got through.
Each of the three antispyware programs I've mentioned are free. MSAS require Windows XP.
Spybot Search & Destroy (donation supported)
Lavasoft Ad-Aware SE Personal Edition (free version of commercial software)
Microsoft AntiSpyware (free for Windows XP users)
Here are instructions for spyware scans with Spybot S&D.
Here are instructions for Ad-Aware SE Personal Edition.
Microsoft has a list of articles for scanning and setting up MSAB.