Windows 7 Update appears to be compromised?

People can reasonably be concerned and mistrust their computers until they get a clear answer.

Completely agree and they should. Something like this is extremely concerning. Especially with something that just doesn't look quite right. Something such as Windows Update getting compromised is highly concerning or any indication that it potentially could be.

That's the flame malware I refer to that got on systems with usb flash drives.  It wasn't trivial at all to compromise the system and since then the manner in which they tricked the systems (a TS server that generated bogus Microsoft CA certs) has been removed and there's been a metric boatload of CA /root cert/ WU hardening done in the meantime so that the manner in which that attack occurred then can't be replicated now.

https://social.technet.microsoft.com/Forums/office/en-US/18eeca65-21e1-42df-b882-8c1b099f1a7f/updates-needing-files-2-downloaded-133254-mb-of-133305-mb?forum=winserverwsus

Note that thread.  See the same pattern of the funky server name - the rr1winwusfs04 referred to?  Back in August there was a similar issue where a  "test update for supersedence" was released.  Again my gut is still telling me this is not nefarious.

People can reasonably be concerned and mistrust their computers until they get a clear answer.

Agreed.

MS are obliged to say something.

Could you please do the following:

Please zip-up the contents of the folder:

C:\Windows\SoftwareDistribution

And send the zip to secure@microsoft.com, referencing this thread so that Microsoft can triage what's going on here.

Actually the way patches are digitally signed, and it has to match up with a Microsoft cert authority while one never says anything is impossible, one can't inject something into the update without first compromising the entire OS's cert checking process.  And in this case, an attacker would be REALLY stupid to go through all that trouble to compromise the cert checking process and then blow it on the actual attack sequence.

This is true. Unfortunately, that system has indeed already been compromised at least once. http://www.wired.com/2012/06/flame-microsoft-certificate/ 

People can reasonably be concerned and mistrust their computers until they get a clear answer.