well, you're not the only one who's had this problem. a net search for C:\WINDOWS\SysUpd.exe turned up quite a few hits of people saying they had the same exact situation. one of them said he'd fixed it with a certain program, but that explaining how to do it would be worthless because his explanation would make no sense unless you already knew how to use it. very helpful.
someone else posted
this solution :
To get rid of sysupd.exe, an annoying virus like program that installs itself to Windows XP, here is what I did:
Reboot in safe mode
Delete all instances of sysupd.exe by searching
(c:\windows\sysupd.exe)
(c:\windows\prefetch\*.pf)
Go to the registry and do a search for sysupd
Delete all keys pertaining to this
As an extra measure of safety, copy the filenames
of the prefetch file and .exe file and create
bogus versions of these files using notepad and save them with the same name in the same locations in c:\windows and c:\windows\prefectch
that you found them in. Clear your browser cache.
Reboot and so far I haven't seen sysupd.exe since.
booting into safe mode probably is your best bet.
it's been suggested in a few other places.
those places also suggested using a program called
hijack this , but even with that, you need to boot into safe mode and finish the job manually.
there's another thread about this issue
here, if you'd like to check that out.
in any case, you need to be able to boot into safe mode. i'm not sure what version of windows you're using, but holding down the f8 key during the early bootup stages should do it. holding down the f4 key during bootup should bring you to a menu which will allow you to choose safe mode as one of the options.
safe mode basically loads windows with an absolute minimum of programs running. that way, the virus/spyware won't be activated, and you should be able to delete it.
you can get more info on safe mode by searching your windows help files for "safe mode." my computer lists the same information as you find
here. unfortunately, i can't say that i've ever seen this comp display the words "Please select the operating system to start." still, it should work if you press f8 at the right time. it may take a couple of tries, but you should be able to do it.
sorry i can't be more helpful on that score.
anyway, once you get into safe mode, you can either delete the file yourself, or you can run spybot again and it should be able to delete it.
good luck.
Paul
It's becoming a royal pain! Any suggestions on that? I'd be willing to pay a million zillion dollars times two! 
