Thank you for your help! I will try Inderjeets option first. It seems like a rather daunting task to try a new theme after all the work I put into the theme I currently have. I am still very new to WordPress. But so far I am really enjoying it, just trying to get over the learning curve is a pain!
Devin, do you have any other links on the subject of embedded spam and hacked themes. I really hope this isn't the case! I will go ahead and start over with a new theme on my local server for now, I will try twentyte. Since this was a 4 day rush project for a client who needed to make a contest deadline, I used a theme that she already liked so I'm kind of stick with this one live for now :(
Thanks again for your help guys!