Sounds like it? Except it says fixed in SP2 which you've said you're running.
It sounds like something to do with Group Policy i'd say as I think that is the stage at which it is applied. Is this a 'new' thing? Only this machine? The question I always ask myself when things go wrong is 'whats changed' - that isn't clear from your post. Did it work before?
When you say 'hangs' have you tried leaving it for a long period (say overnight) or do you mean it errors or what? Sounds like it can be very slow but eventually apply and I wonder if you're giving up after say 10 mins? (I appreciate that's too long but at least you'd know if it eventually gets there if you leave it)