No AIO isn't necessary just some members prefer to have them, also you do not need to download different versions of windows 7 you only need to download either x64 or x86 and remove EI.cfg file from sources folder that will give you the option to install any version.
When I would reinstall Windows 7 and update, that update was always unchecked by default. I would look for the unchecked update, look at its description, right-click, hide.
And what update would that be you are referring to KB971033 there is absolutely no need to hide it if you use Daz loader it works ok with it.