SVCHOST.EXE at 100% and no Windows Updates

I'm in a particularily weird situation.
I've got a Sony Vaio pcv-rx540 machine that I just installed a fresh copy of XP Home SP1.
With auto update turned off I go to Windows Update site and the green progress bar just goes round and round and nothing ever happens until about 15 minutes I get an error that webpage can't be displayed. (NOT the black and white 404 similar page! This is Windows Update page that says try refresh etc)
During this time SVCHOST.EXE jumps between 80 and 90% and CPU stays at 100%. As long as I'm not trying to get updates, computer flys like normal.

If I turn auto update on and reboot, as soon as it connect to the internet all the above starts again. Although if I let it sit long enough, say 45 minutes eventually the first 3 updates (Installer, BTTS I think and one KB update come across - no where near as quick as they should)

This happens with SP1 and even with SP2 installed.
What could be wrong to cause cpu usage to max out when trying to get updates and as long as that's not happening, the computer works just fine?
Again, this is a fresh install...even tried it on a different hard drive in case first had remains of virus or something...both drives formatted each fresh install. (I've tried this 3 times to no avail)

 

Thank you

You know, Arie, I searched SVCHOST and didn't find anything close.
I'm glad you picked up on this...I should have searched the Windows Update error number.
Perhaps people in the future may find my message if they too try SVCHOST!

Now I'm not 100% which step in the message took care of the problem...I tried all but the running of Dial A Fix and it's working now. (I did each in order)