After repeated failures to install MS Patch KB916281 on my XP system. I discovered that I was receiving Error Code: 0x80242008 which MS has little to say about.
This is what worked in my case.
I had moved my Program Files Directory to my D:/ drive using TweakUI some time ago and have found this causes troubles time and again applying MS patches properly.
Steps Taken: 1. Move Program Files directory back to C: drive using TweakUI. 2. Install KB916281 using Windows Update 3. Copy all files & directories from C:\Program Files\Internet Explorer\ directory 4. Paste and ovewrite files in the 'Tweaked' D:\Program Files\Internet Explorer\ directory. (Recommend creating a Restore point before doing this!) 5. Move Program Files directory back to D: drive using TweakUI. 6. Try Windows Update again and Voila!
I still cannot understand how MS does not take into account that not all people have their Program Files directory on the original C: drive.