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Probably the second most common question I get from people starting to use XP Embedded is "Why can't I update my Embedded runtime directly from the Windows Update web site?" (the first question I get is "Are you Windows CE?" <grin>). Here are some of the reasons I respond with.
Windows Update has no knowledge of Embedded as an OS platform, therefore there is no built-in logic to assess what features (and files) are present on the runtime. This means that Windows Update would blindly push down all security updates that were not already present on the runtime, whether they were appropriate or not. There are a number of reasons why this is a scary scenario:
Windows update packages include a payload that contains previous versions of files, which facilitates "roll-back" to a previous version of a file if the updated one causes a problem. This has footprint implications, because the install packages may be bigger than desired on an Embedded device. Also, XP Embedded does not support Add/Remove, so it would not support rolling back to a previous version.
XP Embedded does not have Windows File Protection. This means there is nothing to prevent the updated version of a file from overwriting the original one and causing other applications and features to break because of versions incompatibility.
Applying unnecessary updates to the device could cause it to run out of disk or memory space and to crash- having your Embedded device "blue-screen" in the field is not on any customer's wish list.
Ultimately the owner of the image would lose all control of that image, and not be able to reliably see what state it was in
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If your device fails to boot from a UFD and:
1) Your device is getting through NTLDR and you're getting into the NTOS but then failing with error 0x7B
2) You have verified that your BIOS is enumerating your UFD by using the XPE instrumented NTDETECT.