UPDATE: Please see this post FIRST:
While the methodology below works to bring the machine back, its state after the fact is questionable.
This post is a direct copy and paste from here:
Answer was provided by thiswoot.
YEP I GOT IT WORKING!! I DONT KNOW IF MY METHOD IS THE BEST BUT IT WORKS!
This method works without Safe Mode, without backups, without System Restore, without DISM, and without a Windows 7 DVD repair disc.
01. Reboot your computer while it's starting up.
02. When your computer starts up again, choose the option "Launch Startup Repair"
03. When the Startup repair starts, click cancel.
04. After you click cancel it will show a box. Click "Don't Send"
--> PIC: http://i52.tinypic.com/xgjriw.png
05. Click the link "View advanced options for recovery and support"
06. In the new window click Command Prompt at the bottom.
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07. In Command Prompt type this and press enter: %windir%\system32\notepad.exe
08. Notepad will open. In notepad go to File-->Open.
09. Change the type of files notepad views from .txt to All Files (see pic)
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10. Now in Notepad, go to C:\Windows\winsxs\ (or whichever drive Windows is installed on)
11. In that folder, find pending.xml and make a copy of it
12. Now open the original pending.xml (it will load really slow because the file is huge)
13. Press CNTRL+F and search for the following exactly: 0000000000000000.cdf-ms
14. Delete the following text (yours will be a little different):
<MoveFile source="\SystemRoot\WinSxS\Temp\PendingRenames\e56db1db48d4cb0199440000b01de419._0000000000000000.cdf-ms" destination="\SystemRoot\WinSxS\FileMaps\_0000000000000000.cdf-ms"/>
--> PIC: http://i54.tinypic.com/adzpzp.png
Your PC might not have all 3 sections of code (<Checkpoint>, <DeleteFile>, <MoveFile>). Just make sure you delete section "Checkpoint" and whatever other sections have "000000000000000.cdf-ms". They will be right next to eachother.
15. Save the file, close notepad, close command prompt, restart your computer.
Once your computer starts up, do a normal startup (it may stall for 5-10 minutes at the "starting windows" screen, but leave it going) and the Service Pack will install some more stuff and restart a few times and then everything should be working! For some people, it reverts everything and cancels the service pack installation. For other people, the service pack installation completes. Either result is fine.
We are starting to see dead bodies as well and will use this method to restore the machines to working order.
Note that the Pending.XML file may change its permission state when edited and cause the revert to fail. Check the file attributes both before and after making the necessary changes.
Again, the answer was provided by thiswoot. Thank you! :)
UPDATE: An important link to start with when troubleshooting on Windows 7:
Microsoft Small Business Specialists
Co-Author: SBS 2008 Blueprint Book