Yesterday I got issue with Vista’s KB935807 deliveried through Windows Update. I fall into restart loop and update warning “Windows couldn’t install update(s) please re-install”. By then I tried agian and agian, then got the same result. Finally, I decided not to install and hide it. Well, at least I am not alone who got this issue. There is no resulation from Microsoft at the moment.
http://support.microsoft.com/default.aspx?scid=kb;EN-US;Q935807 has a workaround now. Unhide the update and see if it works…