It could be that the Windows Update datastore has been damaged (it happens, from time to time).
To get around this do the following:
- Right click on "My Computer"
- Click Manage
- Double click "Service and Applications", then "Services"
- Find the service called either "Windows Update" or "Automatic Update". Click "Stop" to stop it.
- In "My Computer", go to your Windows Root folder (usually C:\Windows)
- Rename the folder "SoftwareDistribution"
- Go back to the Computer Management window, and restart the service.