realize that the earlier post was not referring to the valid MS windows application also called notepad.exe, which is in the windows directory. He was referring to one apparently found in windows/system32 (altho i'm not familiar with that issue so i cant comment further) I dont know which it is you found.
there are two issues. some ppl are actually infected by the trojan which drops a modified mIRC (and modifies the mIRC icon) and creates the files/registry entries detailed at http://www.trendmicro.com/vinfo/virusencyclo/default5.asp?VName=BKDR_IRCFLOOD.X&VSect=T
You can read there what the trojan does.
Others are told its found, but have none of the mentioned entries/files. Whether its a false positive being triggered by similarities or not, we can only wait for Trendmicro to say so and patch for it. Those ppl are also not having any problems on IRC such as you describe, so yours may be a diff issue
Is the problem only in channels? are you able to msg ppl? have you tried other networks? do you see any error msgs in your status window? What is the "funny entry" that you have in startup?
this may sound silly, but it wouldnt hurt to check your colors to be sure you havent set others text the same color as your background (hold down your alt key and click the k key to see the colors dialog or click on the icon that looks like crayons)