RE: Windows update KB898461

I found a solution for this problem (at least it works for me).

Try removing %windir%/system32/PreInstall

On my machine, this was a plain file. After removing the file, the update
installed. The documentation for the update
(http://support.microsoft.com/default.aspx/kb/898461) says that the update
installs into the PreInstall directory. Since it was a plain file, it
couldn't complete the install.