Whoops! I read the emailed post instead of your edited one, and replied to that wording instead of your updated post.
So this is very strange indeed.....
As I mentioned in the post above, after I applied your fixes, the computer was improved, but still would not install SP1. It would fail at installation points (roughly 9-14% of the way completed), then reboot and try again. (and again, and again....)
So we got to the point where we wouldn't let the computer reboot anymore, because whenever it tried to install, it would be completely useless for HOURS (minimum of 3 hours, usually closer to 5), and we do use that computer for other things.
However, I just went and checked on the problem, and holy crap!! SP1 is installed. No errors.
I have no idea what changed or why it happened, but apparently rebooting ad nauseum eventually worked? I don't know, but it truly does appear that everything is working as it should now. None of the other updates have failed since then, according to the installed list.
So I really couldn't say why it's fixed, but it's fixed!
Thanks again for your help. Making my way to the tip jar now....