Windows Update has stopped working...

I would not, under any circumstances, ever trust this system again even if it could be repaired. Heaven only knows what's lurking, somewhere, that brought it to this state in the first place.

This is a very, very, very badly compromised system.

If it is still bootable, and all indications are that it is, a user data backup, a run of something like Belarc Advisor to get an "installed and how much each is used software inventory" so you have it later, then doing a nuke & pave (the completely clean reinstall) is absolutely the safest, and very likely the most time-efficient, option.

Under these conditions, my approach will never be spending tons of time trying to determine root causes and fixes. You never know whether you've "gotten it all" when it's this messy. And doing so generally takes quite a bit more time than backing up what you have in terms of user data and starting over with a clean slate.
 
At this point we're making assumptions about wherever the user has been infected or not. If there is suspicions of an infection, then the best option would have someone from the security team investigate the issue.
 
Please provide the following log file too:

Rich (BB code):
%WINDIR%\inf\setupapi.offline.log
 

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