Having errors with System Restore and Windows Update

Hello experts!

I got an error with System Restore (SR) and Windows Update (WU).

I am seeing this problem on Windows 7 netbooks.  I just erased some old restore points by turning off from SR. 
The problem is that when I want to turn SR on or off, I found a error message that said:

–"could not check schedule file for the following reason: Cannot create a file when that file already exists(OX800700B7)."

I get another message after clicking OK. It says that

"there was an unexpected error in the property page. It cannot create a file when that file already exists. OX800700B7.Please close the property page and try again, ok”.

The SR responding well during testing. I can restore my PC to an earlier period.  But turning on/off SR still displays the error above.

I visited WU site to update my system, but I was informed that updates cannot be installed on my system. As a result, update log for the past 6 months are erased from my netbook because of a fault.  When I checked, some updates were installed on my system.

A few days ago I installed Windows Live Photo Gallery for Windows XP, version Windows live 2009; it was downloaded from Microsoft Website and is compatible with Windows 7.  This software made my computer hang, so I had to uninstall it.  And once again I was stuck with the SR problem on my computer.  When I uninstalled Windows Live Photo, it also uninstalled a bunch of softwares tied to it.  So the SR problem is now on a whole new level.

Why is SR having this error and the update history was wiped out from Windows update?  What is the problem and how can fix it without reinstalling Windows? I have attached the image of my problem below.

What am I going to do with this? Is this something I need to worry about? I hate errors.

Please give me a solution. Thanks.