After 7 failed attempts to get Office 2007 SP1 installed on my machine via Windows update I decided to investigate this a little bit further and you are going to laugh about the solution.

Believe it or not the only thing that was required was to have a CD in the drive while the update was happening, the funny thing is that it can be any CD/DVD as long as it contains some data, so put a DVD movie and start watching it while the service pack gets installed.