winupdate sometimes has a brainfart. Should give you an error code you can google for links at the M$ site for how to clear the cached update files and such.
In the meantime, download the update manually and install it. It seems to hang up a lot on .Net updates--when I see them come up, I always quit WinUpdate and go to the download center to get it manually, then go back and get the rest of the updates after I reboot.
http://www.microsoft.com/downloads/en/results.aspx?freetext=.net+1.1+service+pack+1&displaylang=en&stype=s_basic
Raist