Installer encountered an error: 0x80070003

I have a virtual PC which has Windows 7 installed on one of the machines. I was trying to install in the XP mode in one of them and was successful. But when I try to update Windows update, I get installer error message.
I have a genuine copy of Windows 7 installed on my Virtual Machine. Do I need to do something else, in order for me to update Windows on one of my Virtual machine?
Please help
Windows Update Standalone Installer
Installer encountered an error: 0x80070003
The system cannot find the path specified.
