Well, after 4 hours of registry hacking and driver file deleting, I had to resort to an XP reinstall. I did a clean install and the driver update problem was gone.
Not sure what happened here, but I suggest NOT running the NVidia installer on top of an existing driver installation of the same version. If I had it to do over again, I would use the XP driver rollback feature to get back to the original 12.40. Then run the 12.41 installer.