From my personal experience I have found that there are generally a couple of ways I can tell if a virus warning should be taken seriously or is more likely to be a hoax...
1) I get an email from my parents warning me of some super evil virus. (I love them dearly but they are about as computer clueless as my cats and cannot be taken seriously on such matters)
2) The warning is being reported through email by friends of friends or large mailing list. (same reasons as above but minus the love)
3) Microsoft is not a trustworthy source of information for zeroday virus or security issues. (Microsofts name is often used to lend a sense of credibility to hoaxes and scams because people like my parents have heard of them and do not know about genuine computer security or virus related companies.)
Now having said that I figured I'd check this one out and this is in fact a hoax. There are a number of places that document it as such like
here just as an example.
As for avoiding the real thing BrianG and sanitys have very sound advise that will help you keep most of the nasty stuff out of your pc.