When trying to install WSUS on Windows Server 2008 R2 Standard the following error is thrown "The update could not be found. There may be a network connection issue". This is when trying to install WSUS from the Server Manager console.
The problem here was that this server was configured with a Local Policy to use another WSUS server as it's source for Windows Updates. I have no idea why it was configured as a Local Policy and not as a Group Policy. However, to resolve the problem, simply open the Local Policy editor, and browse to Computer Configuration/Administrative Templates/Windows Components/Windows Update.
Double click the Specify Intranet Microsoft update service location in my environment, this was enabled, with a legacy WSUS server populated in the intranet update fields. I changed this to Not Configure.
To double check the Local Policy has removed the problematic setting open the Registry, browse to Local Machine\Software\Policies\Microsoft\WindowsUpdate the intranet service points should not be present in this list of settings.
