Try downloading and running this.
http://www.thewindowsclub.com/downloading-fixwu
If that don't work, try running the fix it tool here.
http://support2.microsoft.com/default.aspx?scid=kb;en-us;971058
Try this first:
Boot in to Safe Mode (spam F8 at boot)
Go to :
C:\Windows\SoftwareDistribution\DataStore
C:\Windows\SoftwareDistribution\Download
Delete all the content of these folders
Run CCleaner
Reboot to normal mode
Try Updates again
Doesn't matter if there is a windows.old folder or not. You will have to reinstall your programs anyway. As said before, you should do a fresh install by deleting existing partitions and repartition then install.