How do I stop this looping windows update?

You can always ignore an update you don't want. Untick it from the list and it will not bother you again. If you want to get it back, you can always "restore hidden updates" from the Windows Update left menu.

"I've encountered this sort of thing before in Windows 2000. In the end, I resort to the following 'reset' batch file. I've always found it to kick Windows Updates into action:

net stop bits
net stop wuauserv
del /f /q %windir%\WindowsUpdate.log
del /f /s /q %windir%\SoftwareDistribution\*.*
%windir%\system32\regsvr32.exe /s %windir%\system32\atl.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\jscript.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\msxml3.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\softpub.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\wuapi.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\wuaueng.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\wuaueng1.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\wucltui.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\wups.dll
%windir%\system32\regsvr32.exe /s %windir%\system32\wuweb.dll
net start bits
net start wuauserv
wuauclt /resetauthorization /detectnow

I shouldn't think it'll be too different for XP - if at all."