Windows Sustained Engineering has posted packages to download center and Windows Update that targets the underlying issues to "You receive an access violation error and the system may appear to become unresponsive when you try to install an update from Windows Update or from Microsoft Update"

There is also a security advisory for this fix at Microsoft Security Advisory (927891): Update for Windows Installer (MSI)

As there has been techical confusion about the cause of this issue, I'd like to highlight the technical notes in the KB article on this fix (bold italics mine)

This fix is one component of a two-part fix that includes a Windows Update client software update. These updates will be deployed automatically using Windows Update in May 2007 and June 2007. However, some customers may select to manually install these updates. To fully address the unresponsive system issue, both this fix for MSI must be installed and the Windows Update client must be updated to version 3.0.

When you install the MSI fix and the new client, process-monitoring tools may still show CPU usage at near 100 percent. However, the system should still be responsive and should not lock up. If another task requires CPU cycles, they will be shared. However, if the system is idle, MSI will use the full cycles that are available to complete in the shortest time. If another task is running at the same time as MSI, the system may run slightly more slowly. However, the computer should still be responsive.

Remember that you must install the MSI fix and the new client to address unresponsive or locked systems. It is expected that process-monitoring tools may still show CPU usage at near 100 percent, but computer unresponsiveness is not expected. If you watch the process monitor, you may still see CPU usage at near 100 percent during some scans if the computer is otherwise idle. This is expected behavior.

[Author: Robert Flaming]
This posting is provided "AS IS" with no warranties, and confers no rights. Use of included script samples are subject to the terms specified at http://www.microsoft.com/info/cpyright.htm.