Finding your SQL service not running is never a recipe for a good day, Recently I’ve seen this happen on numerous occasions when KB970892 tries to apply to a SQL 2005 SP3 9.0.4035 box -with the System databases moved to a different drive. It appears the patch just looks in the system database data folder for the mssqlsystemresource and distmdl mdf’s & ldf’s. Not in the orginal install folder.
I filed a bug here
As a workaround you can manually copy the mssqlsystemresource and distmdl mdf’s & ldf’s to the data folder your system database mdf’s are in