Re: It gets worse... Fancy going back to a fresh install of Win7?
You are absolutely correct about this. I have an older laptop that came with Vista, but that I had switched to XP the day it arrived. A few months ago, I decided to switch it to a still-supported OS, so I restored the backup I had made of the original Vista install. It immediately began finding and downloading hundreds of updates.
Somewhere in that process, I decided Vista wasn't good enough if I was going to go through the trouble to fully migrate everything. I decided to upgrade it again to 7. I backed up Vista again (preserving all the work I had done) and went for a clean install of 7.
Unlike Vista, the fresh 7 install didn't immediately begin finding new updates. I went to Windows Update and hit the "check for updates" button, and it never found any. It was just checking forever.
I tried the Microsoft "Fixit" tool, manually downloading the latest Update client and several other updates that were meant to ensure the integrity of the update process (which did not work either at first; I describe this below), manually verifying the registry entries for the BITS and wuauserv services, but nothing ever worked. This was a completely clean install from a genuine MS DVD, and updates did not work.
Some people on one tech help forum I went to had said that with Win 10 just coming out recently, the MS servers are probably super busy, so just let it process longer... overnight. For days, perhaps. I tried letting it go a few hours, but it seemed foolish. If the server was too busy to work to update 7, why did it work as intended with Vista?
I eventually used a batch downloader program for grabbing the hundreds of updates from the MS servers (thanks ever so much for not having service packs anymore, Microsoft), made a text file of the list of filenames, then turned that into a batch file to install each update one-by-one. By that time, I had already seen that the Windows Standalone Update installer (WUSA), necessary for installing all updates downloaded from Microsoft, didn't work either (I cannot recall if it threw an error or just hung... something about it being stuck on "looking for previous updates" sticks in my mind), and the standard instructions offered on the MS help site ("make sure wuauserv and BITS are running") didn't help, as they were both in fact running.
At some point, just by chance, I'd noticed that I could get an update to install successfully if I did it immediately after a reboot... which I quickly worked out was before the wuauserv (Windows Update service, which was set to delayed automatic start) had started. The service start type essentially behaves as "manual" until Windows gets around to performing the delayed start.
That was the workaround. I put the service on manual, stopped it, and executed the update batch file. It would start the update service when the given update was started, successfully install it, then stop the update service before the batch file started the next update (when it would again start up). It took forever, and it required constant attention to keep things going (sometimes it would fail to stop the service before starting the next update, and I would have to mess with it to get it to work after that), but it eventually worked.
Once I got nearly all of the updating done manually, Windows Update started working again. It could have been any one (or group) of the hundreds of updates that eventually made it work.
I had occasion to install 7 again after that (this time the 64 bit edition). It did the same thing. I decided to try the "let Windows Update keep working for days" thing, and eventually, it did work.
At the time of the first failure to update, I was perplexed as to why something that worked on Vista had failed so badly on the more recent OS. After witnessing the behavior of Microsoft surrounding the Windows 10 upgrades, though, I came to the same conclusion-- Microsoft is deliberately screwing around with people trying to get a fresh install of 7 updated in the hopes of getting them to give up on 7 and upgrade straight away. This was before it was possible to use a Win 7 key to activate Win 10, though, so going through the upgrade process (rather than a clean install of 10) was mandatory if you wanted 10 for free.
The irony here is that if that had been my goal all along, to install 7 and upgrade that to 10, I would have insisted on getting the update malfunction corrected first. Upgrades on Windows are notoriously unreliable, and the last thing I would want to do would be to perform an upgrade on an install of 7 that was not working properly. It has not been my experience that OS upgrades fix underlying problems so much as exacerbate them.