First, what update was just installed, and was it successful? Second, if you revert to a restore point prior to that update, does the PC work again properly?
I have seen Chrome installed by mfgr on many HP and Dell pc's lately so it probably was there. But I read something into what you said that "auto updates installed over night" and if your wife is leaving laptop on all the time, you are headed for serious problems as laptops are not like desktops. They suffer from heat issues and never should be left on over night or for long unattended periods of time.Exact same problem developed on my wife's computer this morning (Dell laptop, running Windows 7, x32, SP0). The desktop background appears; the mouse works fine, some of the keyboard buttons work OK (caps lock, brightness adjust, etc.), but no icons appear and Ctrl-Alt-Del doesn't work, and the login screen never appears). I restarted in Safe mode and it booted up just fine. Went to System Restore, which showed that an automatic update had occurred over night, with the following changes:
* Microsoft Outlook 2007 update
* Security update KB 2479943
* Security update KB 2483614
* Google Chrome version 10 installed
After doing system restore from the restore point created just prior to the update, everything's fine now; now it's just a matter of restoring each of the above one-by-one to see which one was the problem.
The thing that's really wierd is: she doesn't use Google Chrome, doesn't recall ever even installing it; furthermore, why would Windows Update be updating it? I can only assume that it ran an update by itself and it's just coincidence. Don't know yet if Chrome caused the problem, just kinda strange.
I'll post an update if I can figure out which of the above was the culprit.