ok update. 100% cpu usage is cured. DougCuk your IE8 link did solve the issue. These are the steps that I took.
Clean Install of XP SP2. No updates were automatically installed. Windows Update was not working or would not let me find or search for updates. **IE 8 WAS INSTALLED IN SP2.** I manually installed SP3 from microsofts website. Automatic Update would not find updates, but 8 did show up, I Express installed. KB2813345, KB2698365, KB2691442, KB946648, KB974112, KB975560, KB978695, KB2481109.
SVCHOST.EXE SYSTEM was still hogging 100% usage. no more updates after 24 hours of searching would show or initialize.
I installed IE 8 from DougCuk's link. IE 8 was hanging for 2 hours with out installing, I cancelled. Re installed IE 8 again this time **I UNCHECKED INSTALL UPDATES FOR IE 8 BOX** For IE 8, Killed SVCHOST.EXE SYSTEM process tree. IE 8 INSTALL informed me that IE 8 was installed on a previous XP service pack and warned me that this was irreversible, I continued. IE 8 was installed successfully.
I was finished for the night and shut down computer, Windows Started installed updates before shutdown, 67 updates to be exact. Not sure if this was all the updates since my WIN 7 computer had 200+. But computer is running fine and **SVCHOSTE.EXE IS NO LONGER USING 100%**
**I did not see update KB2898785, I do however see update KB2898715. Thanks DougCuk