I'm having a similar experience where it prompts me every day saying that I have updates available. When I click Download and Install, it checks for updates only to result in the same failure message everyone else mentioned in later replies. I tried your first suggestion to clear the cache and noticed that when I restarted the Windows Update service that it recreated 5 directories. The download then started showing promise as it was in checking for updates longer than before, but eventually started the download but the progress stayed at 0%. It then failed again like before. When trying to start DISM, it stated that it could start the service. Ran SFC and it couldn't find a log file (setuperr.log). I have already tried updating all drivers and no change. This sounds like a corrupted update. Please escalate this Microsoft.
Damon