After removing the virus that is hiding the folders go to C:\Windows and if you don’t see the Software Distribution folder go to  Folder Options in control panel , under the View tab select “Show hidden files and folders” and press Ok. Right click Software Distribution folder, go to properties, uncheck Hidden, click Apply and then Ok.

If the Software Distribution folder is not hidden check the subfolders and be sure that they are not hidden.

You can also try the fixes from Microsoft website http://support.microsoft.com/kb/910338

This issue can be caused by a damaged .NET Framework component. In order to resolve the issue, we have to remove previous versions of .NET Framework and reinstall .NET Framework 3.5, which contains many new features building incrementally upon .NET Framework 2.0 and 3.0, and includes .NET Framework 2.0 service pack 1 and .NET Framework 3.0 service pack 1. Based on its current status, I suggest trying the following troubleshooting steps.

Step 1: Use .Net Framework CleanUp Utility
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1. Please download the tool from the following link:
http://cid-27e6a35d1a492af7.skydrive.live.com/self.aspx/Blog_Tools/dotnetfx_cleanup_tool.zip
Please Note: Microsoft provides third-party contact information to help you find technical support. This contact information may change without notice. Microsoft does not guarantee the accuracy of this third-party contact information.
2. Please save the zip file (dotnetfx_cleanup_tool.zip) from the above link to the local Desktop and extract it.
3. Double click cleanup_tool.exe to run the tool.
4. Please follow the instructions given.
In the “Product to cleanup:” box, please select “.NET Framework – All versions”.
5. Click “Cleanup Now” button.
6. Restart the computer.

Step 2: Manually downloading and installing Microsoft .NET Framework 3.5
=======================================================
Please note: The size of Microsoft .NET Framework 3.5 and .NET Framework 3.5 Service Pack 1 is a little big. Your patience to download the update is much appreciated.
1. Click the following link:
Microsoft .NET Framework 3.5 and .NET Framework 3.5 Service Pack 1
http://download.microsoft.com/download/2/0/E/20E90413-712F-438C-988E-FDAA79A8AC3D/dotnetfx35.exe
Microsoft .NET Framework 3.5 Family Update
http://download.microsoft.com/download/C/6/A/C6ADC586-2518-404B-8973-E1E22C556AF4/NDP35SP1-KB958484-x86.exe
2. When the file download window appears, please click “Save”, and follow the directions to save it on the Desktop. After downloading the Microsoft .NET Framework 3.5 setup file on your Desktop, double-click to manually install it.

http://answers.microsoft.com/en-us/windows/forum/windows_vista-windows_update/cannot-update-to-net-framework-35-sp1-and-family/e9499017-39bb-4e4d-ad61-f2db93030908