The install went fine and there is a key in the box, genuine. She went to install KB971033 but the install failed. That update is the activation update - should she just forget about it and will future updates work? Oops it finally installed. DOes she still need to go online an activate? In the sys properties it says windows is activated.
If your system says that its activated than it probably is. No future action should be necessary as far as the activation goes.