Found this, hope it helps.
http://v4.windowsupdate.microsoft.com/troubleshoot/
Problem Description:
While accessing Windows Update, the following error message appears:
Access Denied
Network policy settings prevent you from using Windows Update to download and
install updates on your computer. If you believe you have received this message in error,
please check with your system administrator.
Resolutions:
Please follow these steps:
1. Click on Start, Run and type "REGEDIT" (w/o the quotes). The Registry Editor will open.
WARNING: Using Registry Editor incorrectly can cause serious problems that may require you to reinstall Windows XP/2K. Microsoft cannot guarantee that problems resulting from the incorrect use of Registry Editor can be solved. Use Registry Editor at your own risk.
2. Navigate to the following key:
HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Policies\WindowsUpdate
3. You should see a key called "DisableWindowsUpdateAccess".
Check the data value for this key. In order to access the Windows Update site, the data value should be a zero "0". If the value is set to a one "1", then your PC is currently configured to DENY access to the Windows Update site. You need to change the value of this key to a zero "0" to allow your PC access to the site. To change the data value, double-click on the key name and set the value to a zero "0".
4. Now navigate to this key:
HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Policies\Explorer]
5. You should see a key called "NoWindowsUpdate".
Check the data value for this key. In order to access the Windows Update site, the data value should be a zero "0". If the value is set to a one "1", then your PC is currently configured to DENY access to the Windows Update site. You need to change the value of this key to a zero "0" to allow your PC access to the site. To change the data value, double-click on the key name and set the value to a zero "0".
6. If you changed any of the data values, then close the registry editor, reboot your PC and try the Windows Update site again.
This also will occur if the account that the user is using does not have full permissions
to the Program Files\Windowsupdate\V4\Temp folder and the iuident.cab is not in this folder.
