What browser are you using when trying to download the Windows Updates? Most MS web pages only work with IE. If you're using a different one that might be the problem.

I'm using IE 6.

Go to Control Panel and click on Automatic Updates icon and see if you can work out your problem from there. Sounds like you have a corrupted Updates file. More than likely it happened during an update session and was not downloaded correctly. When your system is set up auto style, you have no control over when the updates get downloaded, and if for some reason the update is interupted in the middle of the install mode, it can really louse things up. My preference is do updates manually. I have control over when and in which order they get installed in pc and I have never had an error(knock on wood)
Also, Windows Update has been upgraded to Microsoft Update and its supposed to work better with SP2. If you can get to the Microsoft Downloads page, see if you are able to upgrade to this new program.

Thanks for that suggestion.

I couldn't really see much of an option under Automatic Updates. As soon as I turn them on (in any format) svchost.exe starts to use upto 100% of the CPU.

I tried to run Microsoft Update (after deleting Temporary Internet Files) but got the same error message:

[Error number: 0x8DDD0004]
The website has encountered a problem and cannot display the page you are trying to view. Take the following steps to try solving the problem:
Refresh the page.
In Internet Explorer, delete your Temporary Internet Files by going to the Tools menu and clicking Internet Options.
Close and then re-open Internet Explorer.

Any more ideas? All welcome!!

for error 0x8DDD0004 see

http://support.microsoft.com/kb/914224/en-us