SCCM 2007: Group policy settings were overwritten by a higher authority (Domain Controller) to: Server and Policy NOT CONFIGURED

If you ever come across an issue with installing software updates from SCCM and if WUAHandler.log throws a similar error as follows

Group policy settings were overwritten by a higher authority (Domain Controller) to: Server http://SCCMMP.example.com:8899  and Policy ENABLED    WUAHandler     5/20/2017 7:34:04 PM    4592 (0x11F0)
Failed to Add Update Source for WUAgent of type (2) and id ({7E86093A-A9D4-4D0F-8B95-DD18478F0FEE}). Error = 0x80040692.       WUAHandler     5/22/2017 2:40:31 PM    1536 (0x0600)


Try this out:

1. Rename following file, c:\windows\system32\GroupPolicy\Machine\Registry.pol
2. Stop and start WU service
3. Run gpupdate /force
4. Check if WSUS local policy 'Specify intranet Microsoft Update service location' is enabled and it is having correct MP, disable and enable back if still doesn't fix the issue