Quick note (mostly for personal use, but happy if this helps someone else) only.
I suspect this error was due to Returnil messing things up in the system.
So first solution is to disable then uninstall Returnil.
Then this worked for me, not sure if the order mattered:
1. Found the .NET Repair Tool (note: not the removal tool) and Ran it.
2. Uninstall .NET 4 Client software.
3. Restarted the computer.
Windows Update ran a couple of times after that and fixed the problem.
These were the web sites that proved insightful, but I didn't need to go through all the steps covered here. Might prove useful to someone else though.
support.microsoft.com/kb/976982/en-us - this one didn't have the same error code, but had useful info nevertheless.
http://www.microsoft.com/en-us/download/details.aspx?id=30135 - .NET Framework Repair Tool
http://blogs.msdn.com/b/astebner/archive/2012/10/12/10359320.aspx - ".NET Framework Repair Tool now supports diagnosing and repairing .NET Framework 2.0, 3.0 and 3.5 setup issues"
http://blogs.msdn.com/b/astebner/archive/2008/03/07/8108332.aspx - "Updated: what to do if other .NET Framework setup troubleshooting steps do not help"
http://blogs.msdn.com/b/astebner/archive/2008/08/28/8904493.aspx - ".NET Framework Cleanup Tool User's Guide"
