Chris
As far as I know there are 3 issues here.
1) If you don't apply the update 4 then you won't get VPN working at all, so sort out why the "server will not update" first. You also need to instal the correct mppe module for your system architecture.
What are your errors or what is the problem (specifically) ?
I connect using VPN on a Win 2k workstation through a 5.6U4 server using a dial up modem to another 5.6U4 server connected via a ADSL modem (acting as a bridged modem not a router), and VPN works quite OK.
2) I found that the VPN settings on my Win2K w/s which worked OK for 5.5U6 did not work for 5.6U4 and had to be changed in order for VPN to work. ie
Under VPN/Security tab, tick the check box for Require data encryption (disconnect if none).
3) Win XP has known VPN issues, I gather with the service pack upgrade, which MS are trying to fix, so uninstalling any service pack upgrades would be a start.
Hope this helps
Regards
Ray Mitchell