I am reporting this as a known issue that I have resolved. I want to share this info in hopes it will prevent someone from needlessly formatting their system. The systems I have repaired did NOT have malware. It was a service driver issue.
I have not yet determined the magic configuration your machine must have to cause the blue screens but is does point to not having SP3 or IE8.
The only way to recover is to boot to recovery console and manually uninstall KB971486.
After getting to recovery console type the follwoing commands:
You will see a series of files copied and then drop you off to a prompt. Type "exit" (no quotes!) then press enter. Your machine will reboot and should load normally.
If you do nothing from this point the update will reinstall and hose you again. I would suggest you download SP3 (at the least) and take your chances. If you do not you will have to force automatic updates to forget this update. If you want more detailed help let me know.
Edited by daltom1965, 20 October 2009 - 08:07 PM.