Shane,
OK, here's the skinny. Vista 64 machine infected with ? fake antivirus FBI warning popup. Never saw he infection myself, went straight to pulling drive and scanning as a slave on another PC, scanned with Malwarbytes and MSE. Returned HD to system, no popups. ran Combofix and repeat malwarebytes. Found you all in one program and ran that, got stuck in loop (see above).
Everything was looking pretty good but would not do updates. Ran EVERY fix offered by MS. Ran your WU fix. Nothing worked. Found discussion around BITS and how it is needed for WU to work. I looked in my Services list and it was not there at all....started pursuit of BITS fixes. Tried every one offered by MS and anything else I could find, nothing working until I did these 2 steps below. BAM! BITS in Services, Started and Updates working...