Following steps to fix windows live update issue
Uncheck “Automatically detect settings” from IE Tools—Internet Options—connection—LAN settings.
Run command prompt (cmd) in administrator privilege mode then type following command from command window:
net stop wuauserv
Rename c:\Windows\SoftwareDistribution SoftwareDistribution-old
net start wuauserv
Use the Microsoft Download Center to install the System Update Readiness Tool
For Windows 7, Windows Vista, Windows Server 2008, Windows Server 2008 R2
(+) expand the section to see download link for your system.
install KB 947821
Note: installation may take longer period of time. Eg. from 10-30min depending on your server and network environment.
You may try again with the windows update. It should work now. Ensure you are not using proxy if yes then add Microsoft update site in proxy exception.
If retry doesn’t work (weird though) then click on “Check online for updates from windows update” link as marked in red circle.