Error 0x80070005 during Build and Capture on WORKGROUP systems

When creating a Build and Capture image, the system will be most of time in a WORKGROUP and not in a domain. On the image used for this, you can make usage on Offline Servicing for integrating Windows updates in the image. On Windows 7 SP1 this will be around 100+ updates already! When installing applications during Build and Capture however, additional updates are needed. This for applications like Internet Explorer, DotNet Framework and Microsoft Office. You can add a "Install Software Updates" step for that in the task sequence, but error 0x80070005 will be showed in the smsts.log probably. This because the system isn't allowed to download the updates (access denied). Let's have a look on that.
 

 
Before installing updates it's needed to install a hotfix first. This is KB2522623, which is needed because: "InitializeSecurityContext function might not fall back to NTLM authentication in Windows 7 or in Windows Server 2008 R2 when Kerberos fails and has the STATUS_NO_LOGON_SERVERS status". After installing the hotfix, additional updates will be installed without a problem. On above applications there will be almost 50 updates more installed! Just great to have around 160/170 updates in your image that way ;)
 
Hotfix installation: wusa <file>.msu /quiet /norestart

Source: A guide to Microsoft Products
Download: KB2522623