KB928365, Infragistics UltraWinGrid (Preset Manager), and "Fatal Execution Engine Error" : Windows Forms Designer : Windows Forms : MSDN Forums:

"Same problem here. You need to install Visual Studio 2005 hotfix 913384. http://support.microsoft.com/kb/913384"

It's different scenario but same error code, let me try this patch.

The above didnt work, next thing to try is:
http://forums.techarena.in/windows-update/781559.htm
To get back to the land of the living we needed to do the following:
1. Uninstall KB928365
2. Correct the ACL list for the following directories:
C:\Documents and Settings\All Users\Application
Data\Microsoft\Crypto\RSA\MachineKeys
%USERPROFILE%\Local Settings\Temp [Temp Directory] - Thanks to Rod Trent
for this step
3. Reboot the Server

It turns out I only have .net 1.1 KB928366 installed, so I uninstalled it, haven't rebooted yet.