Have you been using registry cleaners, optimizers, tune-up utilities? They are notorious for messing up systems almost as badly as a virus can.
Try uninstalling KB979683 as it may be corrupted and see if that fixes the retrying problem when a fresh copy is installed.
I believe to get .net 3.5 installed you first need .net 3 activated and that is built in to Windows, or at least it is on my Ultimate.
Go to 'Installed Updates' and look over at the left for 'Turn Windows Features On and Off' and look for the .net entry there.
You know that Microsoft provide free support for Windows Update issues? Support for Windows Vista technical problems and troubleshooting