I am experiencing the same problem. I am running Vista 64bit, so some of the troubleshooting tools (CalcsDeleteDB.exe) do not work; I ran the commands manually, but this did not fix the update problem.
The problem may be related to the procedures outlined in the OneCare Live Online Photo Backup Activation Instructions - I just got around to implementing them a few days ago. The error appears to be related to credentials - perhaps when I activated the beta to perform the photo-backup procedures, it impacted the Update process.