>>I *think* there is a setting in IE security for that....
>
>I when into Tools/Options/Security/Custom level/ActiveX controls and plugins and checked Automatic prompt of ActiveX controls. However, when I went into windowsupdate.com, it did not prompt me for installing the ActiveX. It downloaded as usual, verified the download as usual and failed. Do you know where exactly would be that setting if that is not the one?

That's the option I was thinking of. Is it the install that's failing? Maybe clear your cashe and try it again?