Started doing it again and ticking the Automatic connection is not working, having to 'system restore' problem is the date I have to restore to is slipping away.
Thnk it may be time to get someone to look at it 
There are some more suggestions on this thread.
http://forums.techguy.org/windows-nt-2000-xp/701368-ie-7-disconnects.htmlI would definately download Firefox from here:
http://download.mozilla.org/?product=firefox-2.0.0.14&os=win&lang=en-GB before you run Windows Update again. It gives you an alternative to IE for access to the net which could help trouble shooting.
One more thing you could try, this has helped me in the past. If the internet is not working, reset all your modems/ routers etc. The sequence for switching off is - work from the computers along the chain of connection to the socket on the wall. To switch back on - work backwards from the socket and give each piece of kit 2 minutes to fully boot.
Lastly, do this on the affected machine:
Click
Start.
Click
Run from the menu.
Type
CMD in the box.
A black command session window opens.
At the command prompt, type the following exactly
ipconfig /releaseWait for it to stop working.
Then type (exactly again)
ipconfig /renewThis should reset the windows network stack.
Keep us posted.
Jim