Windows XP UPdate

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Try the solution here "Administrators Only" Error Message When You Attempt to Use the Windows Update Site (apply the fix to all machines on the network.)

From Microsoft Knowledge Base Article - 316524

When you attempt to use the Windows Update site, you may receive an error message similar to the following:

Administrators Only

To install items from Windows Update, you must be logged on as an administrator or a member of the Administrators group. If your computer is connected to a network, network policy settings may also prevent you from completing this procedure...
You receive this message even though you are already logged on as an administrator or a member of the Administrators group.