Q:

Virtual machine and virus on Host

The answer should be obvious but I ask anyway. 
If the host is virus infected with a keylogger and you do sensitive stuff on a virtual linux client, that information is being logged by the keylogger. So if the Host is infected, using a VM is useless, right? 
What options do I have, beside an anti virus/malware, a new partition with another OS on it and a completely different computer?

A:

If the host is infected, it's game over. The host O/S sees everything, and even if it's told to ignore things (i.e., redirecting a USB device to the VM), the host can still monitor/log that data. Your options are: use another computer, reinstall your OS, use A/V software, or use a LiveCD.
You can try to remove the virus/malware with A/V or another program to clean the system (possibly from a live CD), but to be completely honest it is virtually impossible to guarantee any sort of security after a system has been compromised. There are just too many places and ways for malicious code to hide in a system where A/V and other tools can't detect or clean them out. If this is a business environment where you have security liabilities, or a personal computer with banking details, facebook login cookies or other fun things that a hacker would like to have, then back up your files (make sure they're clean, or you'll just get the virus again) and format and start over.

