I have the same problem -- excessive disk I/O and high CPU util.
This problem started out slowly and over the past 6 months has increased to the point where my PC is locked up for long periods of time (10-15mins), usually during start up but sometime at random times. CPU util has hit 99% (I have attached a screen print). Disk reads have been over 12million. Disk writes have been over 4 million. Combine this with RTVSCAN running at the same time and my PC has been rendered useless!!
I have exactly the same problem on my IBM ThinkPad.
Both are running Windows XP, Service Pack3, with adequate memory and lots of free disk space (both the PC and laptop have over 50% free space).
Kurt G has said that "LuCallBackProxy is a component of LiveUpdate and is responsible for downloading the individual LiveUpdate files as well as some limited post download processing". However, after sucking down my PC forever and doing a zillioin disk I/O's, none of my anti-virus def files were updated. When I've run update manually, I've observed that update is a separate process.
It really looks like LUCallBackProxy is doing a separate scan of the harddrive.
I've read a many of the write-up here as I could and found nothing that fully identifies or fixes this problem.
So, I've given up and removed (uninstalled) SEP.
For now and until I decide on another AV package, I'm running Microsoft Essentials. It consumes a tiny fraction of the CPU util and NONE of the excessive disk I/O that SEP did, even when performing a full manual scan. When I did a full manual scan using SEP, I could barely run any other application. I have the option of throttling back the MS Essentials exe so that I can run even more applications at the same time.