Microsoft keep a list of Windows Update error codes here:
http://support.microsoft.com/kb/938205/en-nz
http://support.microsoft.com/kb/938205/en-nz
A list of those random things you find really useful when fixing IT issues. It takes ages to track them down again later, and you KNOW you'll come across the issue again. So here they are for me...and YOU...to refer back to any time.
As it turns out Microsoft had updated the Windows Update client on Windows 7 and that an update (the number is KB2720211) was required on the WSUS server to allow the clients to continue to update.
Simple solution is to approve this update in WSUS and apply it to your servers, a bit of a pain is that this update requires a reboot of the server but hey its that or no updates for your clients!