Hi! I am the facing the same behaviour, tried that last registry key (it was already set like this) and it did not work.
The scenario is:
Windows 10 Enterprise Version 1607
Windows Server 2012 R2 with WSUS role (KB3095113 + KB3159706 with manual steps after the installation)
I just approved KB3176929 and KB3176495 for Windows 10 Version 1607 on the WSUS side and once the client tries do download them, a list of services start crashing (Windows Update, Application Information, Background Intelligent Transfer Service, Computer Browser, Delivery Optimization, IKE and AuthIP IPsec Keying Modules, IP Helper, Server, Geolocation Service, User Profile Service, System Event Notification Service, Shell Hardware Detection, Themes, User Manager, Update Orchestrator Service for Windows Update, Windows Management Instrumentation and Windows Push Notifications System Service) and Windows Update application stucks on "Downloading updates".
Ну, Microsoft, ну йоб вашу мать...
UPD: Обещали починить
To clarify, scenario #2 is a problem with the Windows Update client when it downloads from WSUS, and it affects all updates (not just cumulative). Service crashes are expected when this occurs; however, because it is nondeterministic, the download should eventually succeed. Alternatively, you can have your clients scan against Windows Update directly, or download and install directly from the Microsoft Update Catalog. A fix is scheduled for September's Patch Tuesday (9/13). Given the bootstrapping issue that some have mentioned, you may want to deploy the September cumulative update directly to expedite resolution.