Stop using System Mechanic and try to restore whatever files it has removed. If that isn't possible try to use System Restore (Start/All Programs/Accessories/System Tools) to go back to before it all went haywire.

Microsoft Fixit for Update problems: Fix the problem with Microsoft Windows Update that is not working

Microsoft provide free support for any issues with Windows Updates. Support for Microsoft Update (see over at the right how to contact them)

Open System Mechanic and look to see if it has a restore button or some means of reversing the previous operation(s). Registry cleaners are a bad idea as they are pretty-well guaranteed to delete something important and cause headaches down the line. Windows has its own cleanup tools and they are all you need.
The other thing to try is a System File Check see this tutorial: System Files - SFC Command
There is also a chance of infection here of course so download the FREE version of Malwarebytes, update and run a full scan. Malwarebytes : Malwarebytes Anti-Malware PRO removes malware including viruses, spyware, worms and trojans, plus it protects your computer - make sure it's the free version and not the trial of the Pro.
If it wont install in regular mode, try "Safe Mode with Networking" reached by tapping F8 repeatedly while booting up. It will also update & scan in that mode.

By the way, is this Vista Home Premium SP2?

In order to receive some updates from Microsoft you have to be pretty-well up to date. When you open Windows Update does it say that you are using Microsoft Update? See the picture below for what I mean and if not click Change Settings over at the left to make it so. It may involve installing a small update. Click the picture to enlarge if necessary and take no notice of the Ultimate Extras, I have Vista Ultimate so those only come with that.

SP2 stands for Service Pack 2 and you can check if you have it. Look for the 'Computer' item either on your desktop or in the Start Menu (Click the Start button over at the bottom left) and locate it, then right-click on it and select 'Properties'. That will tell you exactly what you have installed. Please post back what it says.

While you're in the Start Menu you might as well check this too, open Internet Explorer and click 'Help" then click 'About Internet Explorer' and tell what that says. This is irrespective of whether or not you have another browser as your choice.

That's good it's service pack 2, and the Microsoft Update is on OK, thank you. When you open IE right-click on the top bar and you should see a drop-down menu, check the Menu bar item and then you should be able to see Help and consequently About.

Now regarding the problems getting updates, if you are satisfied it's not malware then click that link to Microsoft I gave in my first response and you can contact them for help with any update issues.

You should not that some updates offered are occasionally cancelled as not necessary. That could be what's happening here, although it's usually only 1 or 2 at a time.