So, rounding up this thread 6 months after the problem surfaced, Microsoft issued this epic fail of an update KB2862330 to USB drivers initially in October 2013 causing take your pick: 1) blue screens, 2) infinite windows update loops where the update was
presented again and again along with the other updates it caused to fail when included in an update transaction.
The patch was re-issued KB2862330-v2 (http://www.microsoft.com/en-gb/download/details.aspx?id=40541) Jan 14th fixing some people's issues but still does not seem
to be resolved for others depending on the USB devices you have attached to your system. Some have reported detaching all USB devices when you update can help it finally install by avoiding locking any of the many drivers.
Others (like me) have given up and simply "hidden" the update so it doesn't present again which is almost acceptable as this is only a "proximal" threat related to attaching USB sticks with a very specific hypothetical threat but one wonders what problems
that stores up down the line...
Sigh, at least I'm not running Windows 8 :) Come back Bill, all is forgiven,