I was just wondering if it was possible for malware to hide itself in this way.
closed as too broad by Ƭᴇcʜιᴇ007, gronostaj, Mokubai♦, Breakthrough, Dave M Jul 31 '13 at 15:55
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Yes, it is possible for malware to hide itself from view to the OS itself, via a number of mechanisms, including filtering the output from the API calls that show processes in Task Manager.
This class of malware is usually called a rootkit, and is designed primarily to allow an adversary to keep access to a system long-term (called an advanced persistent threat, or APT) by hiding their actions and allowing the adversary to recover access if (partially) discovered. They act as a platform for further attacks on the system like installing keyloggers, spyware, sabotaging system software, or whatever else tickles the attackers fancy.
Rootkits must operate at a very low level in the OS architecture in order to do what they do, so malignant drivers and maliciously patched kernel libraries are generally involved in the better ones.