What is the error you are getting? Is this is case of installing SP3 and after that you can download updates but get an error when they try and install?
I used to have a handle on life... but it broke. Cpt. Red Bull
This will tell you about the SoftwareDistribution folder, which I think was your main question?
You receive a "0x80070002" or "0x80070003" error code after you download an update from Windows Update, from Microsoft Update, or from Windows Server Update Services
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