Okay I guess this one can be marked as "SOLVED" although for no good reason. Here's what I did:
1. Stopped playing PoE, installed new game (Darkest Dungeon, highly recommended!!).
2. Tried to patch PoE again after about a week. It took off like a shot and worked like a charm. Why? No idea.
3. Started playing PoE again.
So there you have it. Can't think why patch failed and then why it worked. Passage of time? Probably I did something different, but not sure what. Maybe PoE noticed Darkest Dungeon in my directory and said, "Whoa, I've gotta get back on the job!"
So now I've got two excellent games going at the same time. Fine.