It seems that this client may have a corrupted datastore, please do the following:
Stop the Windows Update service.
Rename %windir%\SoftwareDistribution to SoftwareDistribution.OLD
Restart the Windows Update service.
Run this command: wuauclt /resetauthorization /detectnow.
Wait 30 minutes.
This seems to have helped get things going again on an XP VM downloading directly from Microsoft (not WSUS). Wuauclt.exe still went back to almost 100% after this fix. I forgot it overnight but when I came back, the automatic update process had completed, CPU was down, and it was asking for a restart.
BTW, if anyone else is scratching their head looking for the Windows Update service (step 1), it's called Automatic Updates in XP.wuauclt and svchost high MEM usage