Here is someone from 2004 who was getting the same problem as you
http://www.eggheadcafe.com/ng/microsoft.public .officeupdate/post10077345.asp
I think the answer confirms what I said.
Many people install Office from a CD (perhaps they bought the boxed product from PC world or whatever).
But for people who work in large companies, rather than giving the CD to everyone they put the code on the network and people install it from there, so they never have the CD.
So as I said above, I think the version of Office you have is one that is meant for large companies, not home users (I assume you are home user and do not work for a large company).
My guess is you dont have the Office CD, so it is looking for the code on the network, and cannot find it.
(Office requires the original code, either on a CD or network, before it can install updates. This may be a security check to make sure people are entitled to have the code).