I also use AVG free in conjunction with Microsoft Security Essentials (built into Windows7) and have had no problems. Be wary with AVG that it is the free version you sign up for and not a free trial of the full version.
Microsoft Security Essentials is not built in to Windows, it is a free downloadable anti virus product. AVG is also an anti virus. Running both could cause a conflict. I would stick with the Microsoft one as AVG causes slow boot up and browsing.