Our site was having the same issue for 100+ computers using Windows Update Server. All were XP or 2003. We resolved it by doing the following via a script:
- Uninstall KB976569 - No Reboot Required
- Install KB974417 - No Reboot Required
- Install KB976569 - No Reboot Required
Apparently KB974417 needs to be installed before KB976569
This worked for me as well. Thanks Brainstormer!