A while ago I found out that the 'Show Hidden Files and Folders' option was not working properly on my computer. I did some Googling and found out that is caused by a spyware/adware/malware (whatever) that messes up the Windows Registry from updating properly, thus disabling the option to 'Show Hidden Files and Folders'. The check box (radio button) works, but as soon as you close the Folder Options Window, the option is disabled again. Anyway, here are some ways to re-enable the option:

You'll have to browse through the Windows registry in order to do this. Be sure to know what you are doing.

Method One: (This one worked for me)

1. Open up the Registry Editor. Go to Start -> Run or press 'Windows Logo key + R' and then type "regedit", without quotes. Press Enter.
2. Browse through the keys: HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\CurrentVersion\Explorer\Advanced\Folder\Hidden\SHOWALL
3. Look at the right side of the on the Window and there should be a key called "CheckedValue", this should be a DWORD key. If it's not, delete that key.
4. Now, create a new DWORD value. Right Click -> New -> DWORD Value. Name it CheckedValue and press enter. Now double click and set it to Hexadecimal with a value data of 1.

This should re-enable the option to show hidden files and folders. Here's another method. I think this method just directly enables the option, showing hidden files and folders (thus, not fixing the main error) but you can try it anyway.

1. Fire up regedit. -You should know how by now.
2. Browse through the keys: HKEY_CURRENT_USER\Software\Microsoft\
   Windows\CurrentVersion\Explorer\Advanced
3. In the right side area, find the key named "Hidden", double click it and set the Value Data to 1.
4. Close the Registry Editor and check if this has fixed the problem.