The original thread posted that their board WAS NOT damaged and that we do indeed have the same problem.
This morning I was able to try to hook up my Arduino to a laptop running Ubuntu 12.04 and I was able to upload and run sketches as normal. Afterwards I re-connected the Arduino board to my original PC where the problems started, and everything is working fine again...I guess the board isn't damaged after all....lucky me smiley As a bonus, now I know not to connect LED's directly to my board as well.
However, I still have no explanation as to how this problem occurred nor how it resolved itself. Since I can rule out damage to the device itself and also taking into account what cachemagic said, I'm starting to think that it has something to do with the driver and Windows systems.
Could this be possible? Any other theories? Personally I'd like to know what to do if this happens again.