Download HijackThis. It will list everything that is in your Startup, as well as any BHO (Browser Helper Objects). Google Toolbar is one of these such objects, which allows developers to effectively change how IE operates. One could install a malicious BHO that will intercept any microsoft.com address and shunt you to another website.
While I don't think that is what's going on here, you may want to check it out.
DNS is pretty simple on Windows machines.
If your HOSTS file hasn't been messed with (2000 - c:\winnt\system32\drivers\etc\HOSTS, XP is C:\WINDOWS\system32\drivers\etc\HOSTS).
If the Windows DNS resolver can't find it there, it will then ask your DNS server. If that DNS Server can't find it, it asks its "upstream" in the heirarchy and so on.
When in doubt, use a Packet Sniffer. Packetyzer is a good choice. You can then see where your network traffic is heading to. That may help.
Update Spybot and AdAware. Also check your Add/Remove programs (something could be installed but not "classified" as spyware) and remove anything you find suspicious.
Hell, I'm actually surprised you're able to ping microsoft.com at all. They usually filter out ICMP traffic period in attempts to ward off hackers. I could probably do the same, but I have no issuse with Microsoft at the moment.
Can you traceroute to Microsoft's website address? Run tracert
www.microsoft.com . Once the traffic has left your computer it's not your problem. Again, you may not be able to do this effectively if Microsoft is filtering traffic, but give it a go. At least you'll get to their border routers.
Look up the QHost Trojan program. It changes DNS settings. Use a different Anti-Virus program if Norton isn't catching anything.