I added all the folders in C:\ drive and only got about 62gb used space, but windows shows that I've already used up to 175gb. This is not a few gigs of discrepancy due to hidden files and such. The reported used space is 3 times what it should be. I've already confirmed that I am really using about 62gb with third party software(windirstat).

So what caused the problem and how do I fix it?

On an unrelated rant, I'm disfragmenting C:\ and instead of gaining drive space, I just lost about 8gb. WTH Microsoft????????

Download and run the freeware SpaceSniffer, which will allow you to visually locate where the space on your drives is going, then you can decide what to do with them.

P.S. Before using SpaceSniffer, make sure that your PC's filesystem is free of errors by opening a Command Prompt window and typing CHKDSK C: /F to fix any errors on your drive. If CHKDSK *does* find errors, it may mean your drive is beginning to wear out, and you should consider thinking about backing up your essential files in preparation for drive failure and replacement.