Check your windows\inf folder (a hidden system folder and you will have to
enable the viewing of such files and folders in Explorer (Tools | Folder
Options | View and check "Show hidden files and folders" and uncheck "Hide
protected operating system files") and look for large numbers of oem*.inf
files that are all 0 bytes in size.  If you've got thousands of such files
this is the cause of your problem as you're probably at the limit of the
number of entries that can be entered in a FAT folder and therefore cannot
add any inf file associated with the update.  Delete ONLY the 0 byte
oem*.inf files.

Why has this happened? One possibility it that you have Norton's System
Doctor installed and forgot to disable System Doctor before updating your
system from the Windows Update site.  If you don't delete these files some
software and most hardware and driver installs will take a very long time
to complete if they complete at all.

For more details see the Symantec site:
http://service1.symantec.com/SUPPORT/nunt.nsf/docid/2000120915010309&src=n
and also MS KB 281967 - "Computer Stops Responding (Hangs) During Setup,
Installing Updates, or Adding New Hardware"
(http://support.microsoft.com/?kbid=281967).  I would recommend that you
contact Microsoft and mention KB281967 and also KB301540 and ask for a
copy of the new ifsmgr.vxd v4.90.3003.  You will then either be sent the
file or told how and where to download a copy.  There should be no charge
for this call other than for the cost of the phone call. Alternatively do
yourself and your PC a great big favour and uninstall System Doctor.