Windows Update: can't apply updates even as domain admin on Server 2008 R2

David's comments were helpful. Further to David's Answer, found a similar key

Computer\HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Policies\Explorer

NoWindowsUpdate (REG_DWORD) - changed value from 1 to 0 - fixed it.

Start, Run, gpedit.msc, Local Computer Policy, Computer Configuration, Administrative Templates, Windows Components, Windows Update Configure Automatic Updates, Enable, Choose option 5

Double check to see if there is a DWORD entry called DisableWindowsUpdate located under the following registry key:

HKCU\Software\Microsoft\Windows\CurrentVersion\Policies\WindowsUpdate 

If this key exists and has a value of 1, change it to 0.

I've seen this when trying to update the SUS server itself. It wants to run it's updates through SUS directly.

for me it was in HKLM\SOFTWARE\Microsoft\Windows\CurrentVersion\Policies\WindowsUpdate\DisableWindowsUpdateAccess

I set it to 0