According to Microsoft, this can occur if you are running Exchange whilst installing the updates. In order to successfully install the updates, shutdown the Exchange Information Store during the installation process. This worked for me.
This event can also be caused by the installation of ATT's Privacy Bird P3P software. Removing the program will clear up this error after reboot.
This problems appears to be caused by a corruption in the update cache. This may happen to Service Packs or security updates.
From a newsgroup post: "Remove this folder WindowsUpdate located at C:\Program Files\WindowsUpdate out of your path; somewhere safe but where the system will not look for it. If all goes well when you go back to the update site remove it. Note that some updates you've installed may appear again."
Check the contents of the file wuhistv3.log, in your Program Files\windowsupdate folder. It may offer clues to the cause of the problem.
From a post from a Microsoft engineer: "We've had sporadic reports of this problem, but we unfortunately haven't been able to reproduce the problem in our test labs. There are some patches that, on some machines, fail with an unspecified error when delivered through WU, but succeed when run standalone."
I found that if you download and install a hotfix directly from a Security Bulletin instead of using WindowsUpdate you will receive a windows pop-up box error instead of the event log error. The pop-up box says: "SetupError: Setup could not find the Setup.log file in your repair directory." See ME175960