Worked for me.... svchost.exe was actually in c:\windows\system32 though...
3 out of 30 of my systems were impacted. I fortunately removed the bad DAT from the repository before it was pushed to more clients.
I repaired 2 of the 3 clients by disabling all McAfee services and then restoring svchost.exe from the Quarantine. Then I unistalled McAfee and restarted and everything worked. I then had to force uninstall the agent, then reinstall McAfee and push the agent back to the systems. All works correctly now on those 2 systems.
The 3rd client I can't restore the svchost.exe file though. Even though I can see the instances of quarantined files in the C:\quarantine folder, I can't see them in the console. the file IS still in the default location, but has a size of 0, so obviously McAfee 'cleaned' it or something. And no way to copy it from another computer because I can't seem to move anything from a USB drive onto the computer.