I've experienced this update loop when i tried to integrate Windows Search 4.0 (KB940157). Previous vLited version that I have works like a charm. It has all the updates before WS4 but when I try to add this hotfix to image it just doesn't work. I tried to start from the scratch and added all post-SP1 hotfixes (including WS4) to image and used old Last_Session.ini from working version, but it's still a no go, always a update loop.