An easier way...
Within IE go to Tools > Manage Add-Ons > Show: Addons that have been used by IE > Windows Genuine Advantage > Disable
And Windows Update will work like a charm. Please note that this isn't illegal in any way, Microsoft know about the workaround, it's just that people using it won't get access to a few certain updates, but major or critical ones will continue to be available.
Another alternative is to turn on Automatic Updates in XP - it achieves the same thing.