Thanks for sharing your experience. A few remarks though:
1. For manually deleting the backup database you should in general follow instructions as outlined in the Technical Brief
Home Computer Backup and Restore, page 25. When you issue the commands
net stop pdl and
net stop whsbackup from a command prompt there should normally be no problems with locked files. If you did try this method and still had issues with locked files could you indicate which file was locked?
2. If you have an issue with updates not downloading, please try and fix this first. Can you please check the version numbers displayed in the Windows Home Server Console, Settings, Resources?
3. Some alternative ways of fixing a broken database can be found
here.