Alright, so after 2 weeks working on this I finally figured out the issue. It was a corrupt windows update store. I stumbled upon the following site in search of my original issue. http://support.microsoft.com/kb/958048/en-us
The fix worked. Basically create a batch file with the following:
net stop wuauserv cd %systemroot% ren SoftwareDistribution SoftwareDistribution.old net start wuauserv
Run the batch with admin priviliages.
The sync now completes with no errors in the WUAhandler.log after doing a Machine Policy Retrieval and Evaluation Cycle on the ConfigManager client.