SCCM Software Update issues!

Greetings fellow sysadmins.

I recently deployed SCCM 2007 R2 and everything seems to be going well except when I attempt to deploy software updates via an update list and a deployment template.

It looks like when the package is created it is unable to copy the files to the package source.

I have the latest WSUS installed, and did not run the wizard after it completed as suggested by other SCCM admins, then then installed the software update point on my primary site.

To give a quick rundown of storage, i have server 2008 R2 on" C:" WSUS updates going to another 40 gig HD "O:" and finally my packages are on another drive 40 gig "P:"

Here are a few logs from SMSTrace and distmgr.log

Successfully set access security on MSWNET:["SMS_SITE=SEA"]\CM31SE\SMSPKGP$\SEA00015\ for package SEA00015 SMS_DISTRIBUTION_MANAGER

GetPackageSignature() called for package SEA00015 with version 1. UnpackedSignature = 0 SMS_DISTRIBUTION_MANAGER

RDC:Binary update DP P:\SMSPKGP$\SEA00015\ using DP version 0, Source version: 1, Source: P:\ SMS_DISTRIBUTION_MANAGER

RegisterSignatureUsage() called with for Package SEA00015, Version 1 with Targetpath as P:\SMSPKGP$\SEA00015\

C:\SMSPKGSIG\SEA00015.1 already exists

Unpacked folder for package version SEA00015.1 is being used by 1 user(s) currently SMS_DISTRIBUTION_MANAGER

RegisterSignatureUsage() called with for Package SEA00015, Version 0 with Targetpath as P:\SMSPKGP$\SEA00015\ SMS_DISTRIBUTION_MANAGER

Could not register signatures for package SEA00015, version 0 and TargetPath P:\SMSPKGP$\SEA00015. Will do full file deltas for updated files. SMS_DISTRIBUTION_MANAGER

C:\SMSPKGSIG\SEA00015.1\$RECYCLE.BIN\S-1-5-21-3036625466-2778081229-711462567-15130\desktop.ini could not be located SMS_DISTRIBUTION_MANAGER

UpdateStagedFile failed; 0x80070002 SMS_DISTRIBUTION_MANAGER

UpdateStagedFolderRdc failed; 0x80070002 SMS_DISTRIBUTION_MANAGER

UpdateStagedFolderRdc failed; 0x80070002 SMS_DISTRIBUTION_MANAGER

UpdateStagedFolderRdc failed; 0x80070002 SMS_DISTRIBUTION_MANAGER

UpdateStagedFolderRdcW failed; 0x80070002 SMS_DISTRIBUTION_MANAGER

Any assistance is greatly appreciated.

From the logs it appears there is a file that is is trying to pull "desktop.ini" and is failing.

Sorry for the log format.