I have recently been asked to fix a very similar problem on a network of over 200 computers, this included machines running Vista, XP and 2000.
It turned out to be a virus called Conficker had changed all the system settings so we were unable to get to the update site. Here are a few things to check first. Nb. just because windows can't update doesn't mean there is a virus, it could be due to many reasons.
First thing to do go to this website
and download and run Windows Malicious Software Removal Tool.
ensure it completes fully with a full system scan (the one that says "this may take a few hours" not the quick scan).
If it finds any infected files restart the computer when asked to. It might not remove the infection but at least then you are aware of the problem. If it is a virus check you have a fully up to date anti-virus package (I recommend ESET Smart Security, which you can get for 30 day trial to remove the virus - nb. if you do use Eset be sure to remove any other antivirus software you have before installing, chances are if you already have an antivirus software installed it's not a very good one if it's let a virus in that Windows malicious software removal tool can find!)
Run the antivirus on a complete scan to ensure the virus has gone.
If it turns out it isn't a virus, or even if it is follow these steps next...
1. Type in the search box SERVICES.MSC and press enter (or go to "Start" then select Run... and type SERVICES.MSC and press enter)
2. A list box will open up with a load of services in it, go down the list to BITS (Background Inteligent Transfer Service). Check this is set to Startup type: Automatic or manual (make sure it isn't disabled, if it is double click on it and change it to automatic, click apply and then click start and click ok).
3. Go down again to Windows Update (Vista) or Automatic Updates (XP/2000). Again ensure that this is set to automatic and start it.
Nb. sometimes these services claim to be started automatic but they are not started, if this is the case double click on them and ensure they are set to automatic, click apply and click start. You must ensure these services are started for updates to work.
After doing this don't restart the computer, just run automatic updates and it should work. If you are still infected with a virus and you restart the computer you will find that the automatic updates and BITS services will turn themselves off again (this is the virus to stop you from updating your system).
If you still have no joy, ensure your computer is connected to the internet (I know this may seem like a fairly obvious one, but your computer must be connected to the internet and be able to get to Microsoft to update.)
The easiest way to do this is to go to http://windowsupdate.microsoft.com and see if things start loading. If you get "This page cannot be displayed" or any other similar error, this is your problem. Even if you can get to sites like google, or cnet, something is blocking you from getting to Windows Updates and you need to find out what it is. If you have had a virus check your internet option (from Internet Explorer go to Tools->Internet Options and go to the Connections tab. The settings in here will depend on your ISP, most of the time if your either connected through a router (wireless or ethernet) you should have "Never dial a connection" selected (if it's greyed out don't worry that's fine) and in LAN settings the proxy settings should be blank and not ticked and the Automatically Detect Settings tick box should be ticked.
If it is set up to access the internet through a proxy note down the proxy and then remove it, see if that makes any difference, if it totally kills the internet put the numbers back in and re-tick the box for proxy usage. Most home networks wont use a proxy server, but some ISP's may, most set that up automatically though so the end user doesn't have to get confused, although quite a common trick of viruses is to add a proxy server. The proxy server then routes all traffic through their network, so they can do things like log sites visited, steal passwords, block updates, etc.
If you still aren't getting anywhere, try Wuinstall - http://www.xeox.com/index.php/en/tools/wuinstall
download the zip file and unzip it to your desktop, ensure the "Wuinstall" program is on the desktop and not in a folder e.g. use "unzip here" rather than "unzip to ..." or double click on the zip file and copy the program called wuinstall to the desktop using either windows copy and paste or drag and drop method (don't worry about the other files they're just licence agreements, you can read them if you want).
Go to start and in the search box type CMD (or click Run... and type CMD and press enter - nb. the run command isn't on all computers, it was replaced in Vista with the search box, although I have seen a few Vista computers this week with the Run box on them instead of search, it all depends on how you have Windows set up!).
A black box with text in it will appear (possibly the best way to get anything done in Windows, but only if you know what your doing - don't worry though if you follow my instructions you'll be fine).
Type CD Desktop and press enter, the prompt should change to something like
Wuinstall /install and press enter
Wuinstall should now tell you it's searching for updates, then downloading updates, then installing updates. Remember there will be pop ups that appear on screen with end user licence agreements you need to accept these for the installation to be successful, if you cancel these the installations will fail. Also some of them (like Internet explorer actually pop up behind all the windows so you need to keep an eye on the taskbar as well.
nb. this process can take quite a long time and at times the computer may seem like it isn't actually doing anything, especially when it's first scanning for updates, leave it going.
Once it's complete restart the PC, and your PC should be fully up to date.