Is a bar popping up (usually yellow, same as when a pop up is blocked) asking you to install an active x?

Nope - no bar. It did the very time I ran Windows Update. I've been able to get updates until recently.

I haven't installed any new programs. I did mess with my services but I just got done restoring then to the default settings via blackvipers site.

Make sure IE6 or IE7 is your default browser. Try setting your update service to auto update and see if that clears up the problem.

This may be the problem. You might have to restore Windows if you can't find any other solution.

I ran hijackthis and here is the log...

Logfile of Trend Micro HijackThis v2.0.2
Scan saved at 1:17:50 PM, on 1/15/2008
Platform: Windows XP SP2 (WinNT 5.01.2600)
MSIE: Internet Explorer v7.00 (7.00.6000.16574)
Boot mode: Normal

Running processes:
C:\WINDOWS\System32\smss.exe
C:\WINDOWS\system32\winlogon.exe
C:\WINDOWS\system32\services.exe
C:\WINDOWS\system32\lsass.exe
C:\WINDOWS\system32\svchost.exe
C:\WINDOWS\Explorer.EXE
C:\WINDOWS\system32\spoolsv.exe
C:\WINDOWS\system32\ctfmon.exe
C:\WINDOWS\system32\netdde.exe
C:\Program Files\Alwil Software\Avast4\aswUpdSv.exe
C:\Program Files\Alwil Software\Avast4\ashServ.exe
C:\WINDOWS\system32\clipsrv.exe
C:\WINDOWS\system32\nvsvc32.exe
C:\Program Files\Analog Devices\SoundMAX\SMAgent.exe
C:\WINDOWS\system32\wbem\wmiapsrv.exe
C:\Program Files\Alwil Software\Avast4\ashMaiSv.exe
C:\Program Files\Alwil Software\Avast4\ashWebSv.exe
C:\WINDOWS\System32\svchost.exe
C:\Program Files\Lavasoft\Ad-Aware 2007\aawservice.exe
C:\PROGRA~1\MOZILL~1\FIREFOX.EXE
C:\Program Files\Trend Micro\HijackThis\HijackThis.exe

R1 - HKLM\Software\Microsoft\Internet Explorer\Main,Default_Page_URL = http://go.microsoft.com/fwlink/?LinkId=69157
R1 - HKLM\Software\Microsoft\Internet Explorer\Main,Default_Search_URL = http://go.microsoft.com/fwlink/?LinkId=54896
R1 - HKLM\Software\Microsoft\Internet Explorer\Main,Search Page = http://go.microsoft.com/fwlink/?LinkId=54896
R0 - HKLM\Software\Microsoft\Internet Explorer\Main,Start Page = http://go.microsoft.com/fwlink/?LinkId=69157
O2 - BHO: Adobe PDF Reader Link Helper - {06849E9F-C8D7-4D59-B87D-784B7D6BE0B3} - C:\Program Files\Common Files\Adobe\Acrobat\ActiveX\AcroIEHelper.dll
O2 - BHO: Spybot-S&D IE Protection - {53707962-6F74-2D53-2644-206D7942484F} - C:\PROGRA~1\SPYBOT~1\SDHelper.dll
O2 - BHO: SSVHelper Class - {761497BB-D6F0-462C-B6EB-D4DAF1D92D43} - C:\Program Files\Java\jre1.6.0_03\bin\ssv.dll
O4 - HKLM\..\Run: [NvCplDaemon] RUNDLL32.EXE C:\WINDOWS\system32\NvCpl.dll,NvStartup
O4 - HKLM\..\Run: [nwiz] nwiz.exe /install
O4 - HKLM\..\Run: [KernelFaultCheck] %systemroot%\system32\dumprep 0 -k
O4 - HKCU\..\Run: [ctfmon.exe] C:\WINDOWS\system32\ctfmon.exe
O9 - Extra button: (no name) - {08B0E5C0-4FCB-11CF-AAA5-00401C608501} - C:\Program Files\Java\jre1.6.0_03\bin\ssv.dll
O9 - Extra 'Tools' menuitem: Sun Java Console - {08B0E5C0-4FCB-11CF-AAA5-00401C608501} - C:\Program Files\Java\jre1.6.0_03\bin\ssv.dll
O9 - Extra button: (no name) - {DFB852A3-47F8-48C4-A200-58CAB36FD2A2} - C:\PROGRA~1\SPYBOT~1\SDHelper.dll
O9 - Extra 'Tools' menuitem: Spybot - Search & Destroy Configuration - {DFB852A3-47F8-48C4-A200-58CAB36FD2A2} - C:\PROGRA~1\SPYBOT~1\SDHelper.dll
O9 - Extra button: (no name) - {e2e2dd38-d088-4134-82b7-f2ba38496583} - C:\WINDOWS\Network Diagnostic\xpnetdiag.exe
O9 - Extra 'Tools' menuitem: @xpsp3res.dll,-20001 - {e2e2dd38-d088-4134-82b7-f2ba38496583} - C:\WINDOWS\Network Diagnostic\xpnetdiag.exe
O9 - Extra button: Messenger - {FB5F1910-F110-11d2-BB9E-00C04F795683} - C:\Program Files\Messenger\msmsgs.exe (file missing)
O9 - Extra 'Tools' menuitem: Windows Messenger - {FB5F1910-F110-11d2-BB9E-00C04F795683} - C:\Program Files\Messenger\msmsgs.exe (file missing)
O16 - DPF: {215B8138-A3CF-44C5-803F-8226143CFC0A} (Trend Micro ActiveX Scan Agent 6.6) - http://housecall65.trendmicro.com/housecall/applet/html/native/x86/win32/activex/hcImpl.cab
O16 - DPF: {2BC66F54-93A8-11D3-BEB6-00105AA9B6AE} (Symantec AntiVirus scanner) - http://security.symantec.com/sscv6/SharedContent/vc/bin/AvSniff.cab
O16 - DPF: {6414512B-B978-451D-A0D8-FCFDF33E833C} (WUWebControl Class) - http://www.update.microsoft.com/windowsupdate/v6/V5Controls/en/x86/client/wuweb_site.cab?1198467776421
O16 - DPF: {644E432F-49D3-41A1-8DD5-E099162EEEC5} (Symantec RuFSI Utility Class) - http://security.symantec.com/sscv6/SharedContent/common/bin/cabsa.cab
O23 - Service: Ad-Aware 2007 Service (aawservice) - Lavasoft AB - C:\Program Files\Lavasoft\Ad-Aware 2007\aawservice.exe
O23 - Service: avast! iAVS4 Control Service (aswUpdSv) - ALWIL Software - C:\Program Files\Alwil Software\Avast4\aswUpdSv.exe
O23 - Service: avast! Antivirus - ALWIL Software - C:\Program Files\Alwil Software\Avast4\ashServ.exe
O23 - Service: avast! Mail Scanner - ALWIL Software - C:\Program Files\Alwil Software\Avast4\ashMaiSv.exe
O23 - Service: avast! Web Scanner - ALWIL Software - C:\Program Files\Alwil Software\Avast4\ashWebSv.exe
O23 - Service: InstallDriver Table Manager (IDriverT) - Macrovision Corporation - C:\Program Files\Common Files\InstallShield\Driver\1150\Intel 32\IDriverT.exe
O23 - Service: NVIDIA Display Driver Service (NVSvc) - NVIDIA Corporation - C:\WINDOWS\system32\nvsvc32.exe
O23 - Service: SoundMAX Agent Service (SoundMAX Agent Service (default)) - Analog Devices, Inc. - C:\Program Files\Analog Devices\SoundMAX\SMAgent.exe

--
End of file - 4872 bytes

Tried all that. No go. No need to reinstall Windows. I restored all services to their default settings.

any external fire walls are off?, any antivirus scanners are off ?, any popup or script blockers in the browser disabled ?

turning on and off services can disable updating ability. but as long as they have been returned to their previous states this would not be the problem..no need to reinstall the OS.

I use this Advanced Windows care when Adaware is acting funny..

All firewalls - internal or external - are off. All virus scanners are off. All pop-up blockers and script blockers are off. Still no go on updates.

Anything more than one is too many.  Generally AV proggies do not like each other.....so uninstall any more than one...

Correct me if I'm wrong (which I'm pretty sure I'm not), but when you install a virus scanner doesn't it say to uninstall othe virus proggies for that exact reason, Jafo?

yes.... but you wouldn't believe how many folks actually try to run more than one ...

I only use one scanner. The rest I listed were online scanners.

I was able to update using auto update, but it took an unusual number of tries. Would shut down on its own and then later restart. It finally completed. Could be an MS server problem. They might still be unusually busy. Give it a few more days and try again later.  

I had the problem a few days ago. I just waited til the next day and it was fine.

Im going to take a long shot at this one Kona before I spend a bit of time researching as this error message can apply to any number of scenarios. Do you have a password set for your account on your PC? If so, do you know how to log on as administrator? Instead of clicking on your username when you start up, hit ctrl-alt-del 2 or 3 times then you can type in administrator for the username, enter the password and go from there.
Try running windows update under the administrator account. If it works, then something is hosed in your user profile.
I'll keep digging.

kona, try the Microsoft patch solution. It seems to have worked for others. WWW Link  

I installed the patch. I need to reboot then will try to update. Thanks guys.

Leo I had to install that patch after my main hard drive went out. Fortunately, I had backed everything up to my ext. hdd except XP itself. That patch was a life-saver. Kept me from having to call MS Support, too.....

I'm still getting this message even after that patch:

Generic Host Process for Win32 Services has encountered a problem and needs to close. We are sorry for the inconvenience.

WWW Link

kona, take a look at that....