This error causes windows updates to fail on installation. According to Microsoft, this means you have a corrupted logfile - see this article to clear the log file:
After I ran this, I rebooted, and Windows couldn't find my "profile" - after another reboot (an update had to install), everything came up fine, and my updates now install correctly.
Note - I ran into this problem when trying to install Quickbooks 2010, and the installer went into an endless loop. After fixing the problems with the Windows update, and running some updates that had failed (and a few reboots), I was able to successfully upgrade my Quickbooks version.