The KB974417 update bothered me a for a long time.
Event Log:
Installation Failure: Windows failed to install the following update with error 0x80070643: Microsoft .NET Framework 2.0 Service Pack 2 Security Update for Windows 2000, Windows Server 2003, and Windows XP (KB974417)
Fortunately, I bumped on this yesterday while doing some WCF development :
http://support.microsoft.com/kb/2262911 (about a System.Security.Authentication.ExtendedProtection.ExtendedProtectionPolicy object that did not exist)
The error was related to the .NET 2.0 missing update - The quick workaround described below forced the another way, and it worked quickly and easyly. The article also contains a link which explains dual branch servicing which seems to be the root cause of
the failing update.
Install this: http://code.msdn.microsoft.com/KB975954/Release/ProjectReleases.aspx?ReleaseId=3839
then, do a msiexec /f {C09FB3CD-3D0C-3F2D-899A-6A1D67F2073F} in a cmd.exe