I have had a chat with one of the support people in Microsoft and he admitted to me that they did have an issue.
This lines from the chat -
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We have received so many customers facing the same issue about Windows update so we have changed the DNS settings to Google settings temporarily.
. . . . . . . . . .
Yes, you are absolutely right we just need to change the DNS values to 8.8.8.8 and 8.8.4.4.
. . . . . .
It will be fixed soon, I can't tell you exactly when this will be fixed but I can assure you that you will get the update very soon to fix this bug.
. . . . . .
And once this is fixed you can change the DNS settings to default.
"
Can I suggest that everybody that has this issue either raises a fault report or has a chat with Microsoft about it so that they understand what impact this is having on the Microsoft customer base.
Regards
Infinidim