Update 2010-08-21: The thread here indicates that Microsoft is investigating this as a priority 1 issue.
Normally I don't post PC and Windows-related stuff but there are not many recent posts on this August 2010 issue, so here it is.
I support my own PCs and those used by the extended family. For a few days a staggering issue has been happening. When configuring a Windows XP PC to use Microsoft Update (rather than the good old Windows update), svchost.exe and wuauclt.exe take so much memory that a low-memory PC (512Mb) will start swapping enough to freeze the whole system. I saw this happening on SP2 and SP3.
Yes, 512Mb is not a lot, but before calling me stupid, note that 512Mb used to be the standard configuration a few years ago for many low-end systems and it is officially supported by XP. That bug makes any low-memory PC unusable.
You should note that installing Microsoft Security Essentials switches any PC silently from WU to MU. That's how I introduced the problem and noticed it the first time on a laptop. I was about to reinstall it but found out that there have been some user reports here and here. Microsoft has not released a patch yet but I am sure many corporate users have stumbled on this problem and reported it officially.
The workaround in the mean time consists of connecting to Microsoft Update and choose to stop using Microsoft Update. The PC will revert to using Windows Update and everything will be working normally again.