then SP3 didn't download completely
try downloading it again.
make sure the download completes before you run setup.
Also go into the Internet Explorer settings in contol panel and set the defaults - its possible that after the previous attempts the activex controls have got scrambled.
After you've got SP3 installed then run this (select the correct version)
Information for network administrators about how to obtain the latest Windows Update Agent It links to the latest Windows Update agent
One off-the-wall thing I have seen over the last year is that if I try to run Windows Update while using my ISPs DNS server settings (Zen Internet) the downloads fail. If I switch to OpenDNS they work.......weird, and probably totally irrelevant to this case.