I wanted to try BitDefender, but didn't quite work and now I went with AVG Anti Virus + Firewall.

Just wanted to check is it safe enough or could people still hack it?

People can always hack you, it's just a matter of how easy you want to make it.
Most any basic antivirus and firewall will keep you safe from the daily threats, but if someone is doing a targeted attack against you, it'll be pretty difficult to stop still.

So what would be a good way to stop the targeted attack?

I guess you'd say install Linux?

Linux isn't a miracle cure. It generally does better than windows, but the best defense is to use your head. There's no guide on how to prevent a targeted attack. Just follow security best practice to the point that you feel you need.

Yeah that is basically what I wanted to hear, that Linux is not a miracle cure, I think Windows 7 does good per se, they've improved Windows a lot since the Vista fail, and now there's a version 8 beta and they'll probably improve the security even more. I'll simply buy a book on security and try to learn as much as I can. Security is a topic area of its own which needs its own experts which can not be learned in a few minutes - I'll just have to take the time for it.

That's exactly right :)

pardon my ignorance on this topic, but what targeted attacks could compromise a home user? as far as I know, if you aren't running any services that doesn't leave very many attack vectors. an attacker is left with only a few options, like spear phishing and browser exploitation, and online presence attacks like security question guessing. what am I missing?

The most common way would be to infect the PC with some type of malicious program that either sends back information, or grants the attacker access to the machine.