Okay i figured out the culprit. It is video drivers. I did a clean install without them and was able to install packages and run software update no problem. Manually installed video drivers and the problem appeared. Manually deleted drivers and problem went away again.

Obviously I want to have functional video drivers (or I can't install Logic). I have an ATI radeon HD 3850 and was installing this package http://www.mediafire.com/?t0wa0qjygmd (ATI Radeon HD 3800 pcie AMD Version 10.5.6 - 10.5.x)

The install goes fine and the drivers work. however then I can no longer install packages. The file the video driver package installs is ATINDVR, ATIRADEONX2000, ATIRADEONX2000GA, ATIRADEON2000VADriver.bundle and natit. All kext files that are put in the extensions folder.

Okay I just kept randomly deleting those files one by one and see if it corrupted drivers to see what I did and did not need. In my setup I did not need ATIRADEONX2000, ATIRADEONX2000GA. When I deleted both of these my problem was solved!!! I think I am good for now