The lockup is related to number of CPU core allowance. I am running an Intel i7 (1 socket, 8 virtual cores) and PVE sees it as 8 cores. To simulate my server environment I alloted 4 cores to the 2003 vm before I applied my MS updates. Durring the MS updates I started having the reboot problems.
For testing I built another 2003 client with only 1 core and applied the MS updates and everything worked fine. On the first vm with 4 cores I reduced it to 2 cores and now the reboot also works fine. To make sure I set it back to 4 cores and again have a reboot problem.
For fun I set the second VM to 4 cores and it reboots fine.
Not sure what this means, but it looks like if you are using the i7 CPU & PVE 1.4 then you should not add more than 2 cores until you have completed your MS updates. Hope this helps someone!