We have found that this situation may occur with an install of an AIR file on a Vista machine, where the AIR file is stored on a networked drive. Copy the file to the local machine, then install from the local drive.
Out of interest, where are the log files that you have included in the original post?
We recently had an AIR file failure due to '&' in an image file name (see http://bugs.adobe.com/jira/browse/FB-10582) and it would probably help in future if we can see where the AIR install is failing ..
This happened so long ago I don't have the logs anymore. I think I did post
the logs in the original thread though. I didn't have an '&' in the image
name though, so I don't think that was causing my problem.