I've had this happen on a number of systems now, where installing Windows XP SP3 will cause Windows/Microsoft/Automatic Update to fail.
Thanks to Ron Crumbaker, a simple fix is all that is needed. The steps are listed below, the actual commands are in bold.
1. Stop Automatic Updates service - net stop wuauserv
2. Register wups2.dll - regsvr32 %windir%\system32\wups2.dll
3. Restart Automatic Updates service - net start wuauserv