New Post: Approved install

2013-09-17 11:26:24:086 1000 e28 Agent * WSUS server: <NULL>
2013-09-17 11:26:24:086 1000 e28 Agent * WSUS status server: <NULL>
2013-09-17 11:26:24:086 1000 e28 Agent * Target group: (Unassigned Computers)

Looks like you PC go to Microsoft Update, Not Wsus.
Check the whole Registry Key : HKEY_LOCAL_MACHINE\SOFTWARE\Policies\Microsoft\Windows\WindowsUpdate
You should see the name of your Wsus server (in two value)

After getting the GPO to apply the package is now in a not Applicable state

What are "IsInstalled" and "IsInstallable" Rules ?

where would I verify it has downloaded?

Look at the WindowsUpdate Log file. You can also type WuAuClt /ReportNow to force your computer to report to Wsus.