SCCM 2007 Build and Capture Task Sequence with Software update failed

During Build and Capture Task Sequence, Software update installing is failing and Capture of the image does not start.
smsts.log file shows following error:

!sVolumeID.empty(), HRESULT=80004005
!sTSMDataPath.empty(), HRESULT=80070002
TS::Utility::GetTSMDataPath( sDataDir ), HRESULT=80070002
Failed to set log directory. Some execution history may be lost.
The system cannot find the file specified. (Error: 80070002; Source: Windows)
Executing task sequence
!sVolumeID.empty(), HRESULT=80004005
!sTSMDataPath.empty(), HRESULT=80070002

Task Sequence environment not found

This issue is reported by Microsoft: http://support.microsoft.com/kb/2894518

Here is the explanation of the cause from MS:

The first restart that is initiated by the software update is controlled by the task sequence. However, the second restart request is initiated by a Windows component (typically, Component-Based Servicing) and therefore is not controlled by the task sequence. Because the second restart is not controlled by the task sequence, the task sequence execution state is not saved before the restart. When the task sequence resumes after the second restart, no state is available to continue successfully.
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To resolve this issue, it is recommended to remove following updates:

2862330 MS13-081: Description of the security update for 2862330: October 8, 2013
2771431 A servicing stack update is available for Windows 8 and Windows Server 2012
2871777 A servicing stack update is available for Windows RT, Windows 8, and Windows Server 2012: September 2013
2821895 A servicing stack update is available for Windows RT and Windows 8: June 2013

2545698 Text in some core fonts appears blurred in Internet Explorer 9 on a computer that is running Windows Vista, Windows Server 2008, Windows 7, or Windows Server 2008 R2

2529073 Binary files in some USB drivers are not updated after you install Windows 7 SP1 or Windows Server 2008 R2 SP1
2871690 Microsoft security advisory: Update to revoke noncompliant UEFI boot loader modules


In my case I had only 2862330 and 2529073. After their removal TS finished successfully.