If at any time you had a proxy determined in the Internet Explorer settings, then direct connection may well fail, usually it is the reverse where the Auto detect fails and changing to Direct connection (no proxy) is the solution 
I've never had a proxy in Internet Explorer settings. Only with this 5.1.889 update did Direct Connection setting cause problems with Avast, and it started occurring during the GUI update from 5.1.884 PR.

I think it somewhat strange if it worked with 5.1.884 I would have though it would work with 5.1.889.
I'm on XP Pro and on win7 starter (clean install of 5.1.864 and UI update to 5.1.889) and both work. I did the beta testing on my XP Pro system and that was set to direct connection and the updates worked right up to 5.1.863 (just before 5.1.964).
Unfortunately after the beta testing I did a clean reinstall on my XP Pro system and that is set to Auto detect, so I didn't notice any problem in 5.1.864 nor when I did a program update from the UI to the 5.1.889 build as it was still set to the default Auto detect.
A quick test changing to Direct connection (no proxy) resulted in the error, see image, I don't know what file it can't find as that would seem unrelated to the proxy settings as it doesn't even seem to get that far.
So anyone that had previously set their proxy setting to Direct connection if they didn't do a clean install of 5.1.889 (and possibly 5.1.864 or PR builds) could well fall foul of this apparent problem with the Direct connection option.
So my feeling there is something wrong in the actual update processing if Direct connection is selected, why it reports a missing file (unless that file is the one in image2, but that is located on the setup folder, image3), rather than unable to connect (which I would have expected) is something for the developers to chase down.