Output into temporary table
You must create a temp table with Audit.ErrorLog Columns and then get output records.

Declare @temp Table (ErrorLogID Int, ErrorReported Int, Error NVarChar(100))

UPDATE Audit.ErrorLog 
SET ErrorReported = 0 
OUTPUT inserted.* 
INTO @temp  

SELECT * 
FROM @temp  
FOR XML PATH('Error'), ROOT ('Errors')