LOL!
the "fix" was to free up space on windows system reserved partition and in my case it solved the problem on all boxes. I did not reformat anything. You don't have system reserved partitioned because you have decided to be very smart and partitioned the drive in your own way.
Anyway good luck with your own way of partitioning drives and complaining later one why windows can't apply the updates :)
I definitely have learned my lesson here trying to help some one.
What a beautiful world we live in haha!