I noticed SQL updates (KB960089 but also SQL SP3) were failing to apply on the WSS Developer VM. After many hours of frustration, I located this great blog post that helped me to overcome the issue: http://blogs.msdn.com/sqlserverfaq/archive/2009/01/30/part-1-sql-server-2005-patch-fails-to-install-with-an-error-unable-to-install-windows-installer-msp-file.aspx
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