Hi Brian,
After installing KB3097966 and rebooting, I got BSOD and boot loop. Had to boot with the Windows disc, go to command prompt, and use the DISM tool to manually uninstall this update, then I got access back to the desktop.
I finally had a chance to get my hands on the computer yesterday. Took each drive out (RAID 1), connected them to a different machine and performed a long scan on each. Unfortunately the manufacturer software did not find anything interesting and all tests passed. I also ran MEMTEST on the problematic machine but nothing to report there either. Yet, Windows is messed up. There is a chance that something might be wrong with the hardware (mobo or raid controller). I am not sure I want to continue and try to fix this. A new machine makes more sense at this point. Thanks for checking in and for your assistance. I will keep you posted.