The command option for the followers (wait there, pick up, attack, etc.) will not shut off, Even after Lydia was told to go home. She left and went back home, but the cursor is still staying on that "wait there" option, meaning I can't go into buildings or pick up anything. Killing her did not work... her dead corpse responded "got it" to a wait there command. A reload also did not work.

Have you tried to clean your XBOX 360 cache, and reload a previous save ???