It would help to know what Operating System you are using - XP, Vista or Win 7 ?
This link explains the error message:
http://support.microsoft.com/kb/894732The most common reason for the error message is an incorrect entry in the Registry regarding the path to your FS2004 installation.
Rather than try to manually edit the Registry (always a dangerous thing to do) I recommend that you use the free Registry Repair tool from the good folks at Flight1 to correct that entry:
http://www.flight1.com/view.asp?page=libraryMake the correction and then reboot your computer and then try the update once again.
Keep us posted please.