Ok, since the update was infact pointing in the right place and still couldn't find the file I figured I'd move the file and then try pointing the update to that right...
Well I cut and pasted atapi.sys to my desktop and ran it again and it hasn't asked for the file at all

I hope it doesn't NEED that file for something? It's just creating backups anyways and I don't plan on going back to SP1 so I don't think there will be any problems... You? Oh well.

Where does Windows store backup files anyways? Maybe I can just dump the old one in there???