My computer was starting to act slow and misbehave, so I decided to wipe the drive and reinstall Windows. Afterwards, I couldn't get Windows Update to work. It told me it was searching for a new version of the Windows Update software, then that it needed a new version, and then it was back to searching in an endless loop. So I decided my Windows install must be bad, wiped again, and reinstalled Windows. No luck.
The solution - it's a problem with Windows Update and the fix I found on the Microsoft newsgroups (microsoft.something, I forgot which one) in a Google Groups search is to rename the folders (assuming Windows is installed to c:\windows) c:\windows\system32\catroot\ and c:\windows\system32\catroot2\ . Name them whatever you like - you just don't want Windows to find them. Then run Windows Update. If System File Checker asks to restore files from the CD (like it did for me), don't let it. Finally, once everything is working, trash your renamed folders.
Hope this helps someone!
---P.S.--- The funny thing is, I have friends who steal XP (not something I suggest doing), by using a copy of the volume license edition. One thing they always brag about is how much easier it is when you need to reformat your drive - no reactivation (even though reactivation without a hardware change is simple). And they claim they never have any problems with Win Update (but that may be luck). Anyways, my point isn't steal XP - it's not. That's wrong. My point is that the stolen OS is more user friendly than a legal, store-bought copy. Some copy protection scheme Microsoft created, huh? Doesn't do much good when they create an edition of the program (volume license) that's unprotected...