>>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?

The as-installed, default security settings for IE6 are fine for installing the ActiveXs required by Microsoft Update. You do have to click on the yellow bar at the top of the browser window and confirm their installation, this is normal and I'm sure you've seen this before.

Just to confirm, you are going to Microsoft Update, not Windows Update (they are different) - I access Microsoft Update from the Start Menu (Start...All Programs...Microsoft Update), this only appears once MU is successfully installed.

What the MU Start Menu option is actually running is

C:\WINDOWS\system32\rundll32.exe C:\WINDOWS\system32\muweb.dll,LaunchMUSite