I'll answer my own question (well actually, the answer comes from a
Microsoft employee caled Eric Brodish).

--------- e-mail from Eric follows ----------
Hi,

This may be a corrupt temp folder under the user's profile.

Change the user environment variables TEMP and TMP to point to C:\Temp
instead of the path to the user's profile.

These variables are located in the following registry key

HKEY_CURRENT_USER\Environment

Thank you

Eric

------ -end e-mail from Eric -------------------

Now, it turns out, you don't actually have to go into the registry to
update the TEMP and TMP variables. You can go into Control Panel
and pick the System icon. Then on the Advanced tab (I think, not in
front of my Windows 2000 system at the moment) there's the Environment
Variables. Simply edit the TEMP and TMP items to point to the simple
C:\Temp folder.

I did this and then ran the updater and it worked!!!!!!

I then restarted Windows 2000 and deleted the C:\Documents and
Properties\Administrator\Local Settings\Temp  folder completely.
(Note: You may have a different user name such as jdeslauriers as
above).
I then edited the Environment Variables again to make them as they were
before (something like %USERPROFILE%\Local Settings\Temp )
and rebooted.

All is fine in Windows 2000 land again....thanks Eric Brodish!!

Grok