It seems I've got the problem fixed. Here is the e-mail I recieved from microsoft that gave me the fix. Perhaps you can help someone else with it. Thanks again for all your help.
Dear Dana,<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Thank you for taking the time to reply.
From your response, I understand that BITS failed to start and error message was received. I apologize for the inconvenience which you have experienced. Please be assured that I will work closely with you on this issue.
Also, I notice that MacAfee was running during the update process.
Before moving on, please understand that some third party programs can affect the Windows Update service. If you are running any third party applications such as Spyblocker, Internet or Web accelerators (Programs associated to boost up the Speed of the Internet connection), security or anti-virus programs (Norton, MacAfee, etc.), I recommend we temporarily disable or shut them down and then try accessing the Windows Update site later. Please be sure to enable them again when completing the update process.
After discussing with our Escalation Engineers, we suggest we perform the following steps to start the Background Intelligent Transfer Service (BITS):
Please make sure Show File Extensions at first
1. Open "My Computer", and click Tools->Folder Options and click the View tab.
2. Remove the check mark from "Hide extensions for known file types", and click OK.
Save the attachment (BITS.zip)
1. Save the attachment to your desktop.
2. Right click the BITS.ZIP file and choose Extract
3. Follow the instructions and there will be a file (BITS.reg)
4. Double click the BITS.reg file
5. Restart the computer.
After that, please restart the computer at first and Check Related Services.
Please make sure restart the computer.
1. Click Start, click Run and type in "services.msc" (without quotation marks); click OK.
2. Check if the following service is started.
Background Intelligent Transfer Service (BITS)
3. Double click on the service and click the Start button in the "Service status" section.
4. Click OK.
If you still encounter troubles during the process, please capture a screenshot of the error message, and send the picture file to me for research. I have attached the following steps to capture a screenshot:
1. Keep the window on the screen.
2. Press the Print Screen key (PrtScn) on your keyboard.
3. Click Start, click Run, type "mspaint", and click OK.
4. In Paint, click Paste under the Edit menu, click Save under the File menu, type a file name for the screenshot, choose JPEG as "Save as type", and click Save.
5. Send this file to my email account: email@example.com
Thank you for your cooperation.
I am looking forward to your reply.