One of my machines refused to install updates to the .NET Framework 3.5 sp1, both through auto-update and when installing manually. I finally fixed it by using Aaron Stebner's .NET framework cleanup tool and re-installing .NET. This tool radically removes all versions of the .NET framework, including IIS artefacts, registry entries, the works. I found this tool through a post on raymond.cc.

Note that this tool should probably not be the first thing to try; uninstalling and re-installing the .NET framework versions would probably a safer bet to try first.