kb2731847 on W7-64 fails "Not enough storage.."

I had 11 critical updates that could not be installed via MS-Update. The updates failed and the installations were reverted at Windows restart.

After having tried "Fix-It" to no avail, I tried to install the updates one at a time and the first succeeded, but now I'm stuck on kb2731847 where the installation ends with this error message "Not enough storage to process this command"

Have found some articles about this but they relate to Vista and XP - none for W7.

OldMX said:

Do you have the registry tweak to disable ntfs file compression? If so that might cause your problem.

To the best of my knowledge, no. Read somewhere else that this might also be explained with a defect harddisk, but would like to know if this is a plausible explanation before going the long way with making an ISO CD etc.
Thanks.