I had the same problem when I upgraded from XP SP2 to SP3.
I found the solution here, in an article by Styan (Thanks!): http://www.vistax64.com/net-general/168567-generic-host-process-win32-services-has-encountered-problem.html
In short, the solution is:
These 3 files (wscsvc.dll, wzcdlg.dll and wzcsvc.dll) were replaced when you upgraded to SP3. You must put back the SP2-versions of the files. The build of the SP2-files are the same for all of the 3 files: 5.1.2600.2180
The date (on my computer) is August 4, 2004.
Do like this:
1) Create a new folder that is easy to access (C:\Temp).
2) Search your hard drive for these 3 old files, and copy them to C:\Temp.
3) If you didn't find all the 3 files on your PC, copy them from an other PC with SP2, or you can download them from http://www.dlldump.com/
. When you download, the date will change on the downloaded files, but that's OK. Save the files into C:\Temp. In my case, I had to download wzcsvc.dll
4) Restart your PC, and press F8 to enter the startup menu.
5) Select one of the Safe Mode options (without network) for starting Windows. I used Safe Mode with Commnd Prompt.
6) Open the folder C:\Windows\System32, and rename the 3 files (e.g. wscsvc.dll_sp3, ...). Or if you dare, you could delete them...
7) Copy the 3 old files from C:\Temp into C:\Windows\System32.
8) Reboot your PC.
This worked very fine for me - hope it does in your case, too!
Please tell us if this worked!