Windows Small Business Server (Windows SBS) Update Services is not running because it automatically turns off if you customize Windows Server Update Services (WSUS). For a list of specific settings that cause Windows SBS Update Services to turn off, see the Microsoft Web site. Even if WSUS is managing updates for your network, the accuracy of the status in the Windows SBS monitoring report or on the Update Services home page cannot be guaranteed. To use Windows SBS Update Services, reverse the changes that you have made to WSUS or reinstall Windows SBS 2003 R2.
As it turns out, the Small Business Server SE team has created KB article 945985 which talks about how to return SBS to it's normal authority over WSUS.
The script peice at the end solved the problem instantly. The script was written by our SE dev, Donald, who also runs this SBS blog (in Chinese!)