Hi softwaremaniac,
I wanted to update you with some good news. After doing some cleanup I was able to install March CUs on all four servers with a stand alone install. I am going to try Windows Update again for April, but if it still does not work I'm pretty confident that I will continue to do stand alones, which is fine.
What happened was I realized a few weeks after you identified that ServerWeb directory under system32 that I had used that directory to place a bunch of 0k files. I did so because I was getting warnings from my backup software. It was looking for certain files there related to a system state backup. What I thought was a benign fix for a benign problem wound up breaking the Windows Update process on several servers. After I realized what happened I cleaned up the remaining 0k files I had created in other directories.
After this stand alone installs worked on all the servers. I'll see after April's CU release if Windows Update is functioning better on the servers, but if not I'll continue to do stand alones.
Thanks again for identifying the ServerWeb directory as being a problem. I would not have made the connection otherwise.