Ive been fighting this for several DAYS ON AND OFF , until I found this link:
http://windowssecrets.com/comp/070927
The fix is here, and it seems Microsoft Screwed us again.
From the Langa website "However, after using the repair option from an XP
CD-ROM, Windows Update now downloads and installs the new 7.0.600.381
executable files. Some WU executables aren't registered with the operating
system, preventing Windows Update from working as intended. This, in turn,
prevents Microsoft's 80 latest patches from installing — even if the patches
successfully downloaded to the PC."
I suggest you subscribe to his newsletter called "Windows Secrets -
Everything Microsoft Forgot To tell You " Get it Here
http://windowssecrets.com/