Well, you don't need to worry now that is has worked. But should you ever need to clear the software distribution folder, Brink's Reset Windows Update in Windows 10 tutorial has a .bat file that will do it all for you the correct way.
I have the same behavior and I do have "Allow downloads from other PCs" disabled.
However I've had this disabled for months, and Quality updates have always been detected and installed normally by Windows Update.
The problem seems to be started after I set to exclude drivers via Group Policy editor.
Not sure this is the culprit tho, because the problem is still present, even with the option back to the "normal" state of "Not configured".
Was greeted with a message saying something about a "new update now available" after letting my PC sit idle for a while. I have never seen that before, but everything seems normal after restart. This one didn't poop out like the last one, thankfully.
This update is much better than Build 162989.251.
All 7 computers are updating with Windows Update instead of needing to use the downloaded msu file.
The older ones required more than one restart.
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