Never put an open PC on an internet connection or unsecured LAN. Driveby downloads are really bad.... I recently rebuilt my game machine. After loading windows I plugged into the internet and tried to go straight to Microsofts page to download patches, SP2 etc. I started getting popups and could not get to Microsofts page.... all the popups were directing me to a site where I could download microsoft patches for $39.95. Drive-by download wrote a startup script that locked down all other websites except theirs where I could pay for patches.... Luckily I did have SP2 on a disc so did a selective startup to kill the script and then loaded SP2. Didn't have any problems after that. I didn't download anything, just connected to the internet and it took less than 5 minutes before I had problems. This was a completely reformatted HD and fresh XP install on it so I know that there wasn't a problem prior to hooking up my dsl modem. I was kind of shocked that my system was "compromised" that fast.... I'm not planning on putting my cab online. I can easily update via a 1 gig thumbdrive. not even going to put a cd\dvd rom or floppy in it... thumbdrives are so much easier.
When you "connected to the internet" were you behind a router?
Routers are so cheap, there's no reason to not use one.
A machine on a dialup connection, or plugged directly into a cable/DSL modem will get hammered within minutes of getting online.
A router acts as a kind of hardware firewall that keeps you somewhat safe as long as your computer has all of the windows security updates and you don't browse to the "seedier" parts of the internet like porn or warez sites.
If you need to get online without a router, you had better install Zone Alarm from a CD first so you at least have a software firewall for protection.
The bottom line: computers behind a router are usually safe from major virus/trojan/worm attacks as long as they aren't used to surf the web. My arcade cabinet falls into this category. They can, however be infected by other infected machines on your network so make sure that everybody has up to date anti-virus programs.
On my primary (non-mame) computer, I use the following products...
AVG Anti-virus (free edition)
Zone Alarm (free edition)
The Proxomitron web filter (blocks ads, popups, and harmful content)
+ Proxopatcher (updated interface for Proxomitron)
+ JD5000 Proxomitron filter set (I have "JD_Extra" as my default set)
Spybot S&D (the immunization feature is nice too)
Ad-Aware
HijackThis