I also was having trouble for two weeks in mid-April where it kept saying "Update Failed." On that Win98SE machine I did not have a firewall.
It only corrected itself when I launched the AVG Control Center, selected Update Manager and clicked "Properties." I changed it to "Update immediately" and "Restart immediately" and strangely enough, it has started working fine again.
Thanks for the advise guys I finally got it working.
Resolution Methods To repair the error, you need to delete temporary update files.
Users who have an Internet connection can enable the Automatic Update option that automatically installs new updates as and when they are released.
However, at times the AVG update process gets terminated due to various AVG update errors.
Afraid to switch back to "Update upon next computer restart" cuz it somehow was connected.
That's the limit of my knowing what was problematic for my machine.