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I have PE4 running on my laptop with XP-SP3 with no problems. What I do not remember is if I upgraded to SP-3 before the installation, but *think* that I did.
The only problems that I encountered were with CS2 Production Studio. I had to do a bit of cleanup and file copying to get Bridge to work, and then had to do a "repair install" for P-Pro and Encore, but all is working well.
Do not recall seeing an error 1008 before in these forums.
It *could* be that PE4 was written, so that it looked for things in SP-2, and now some file names are changed, in SP-3. Still, I belive that I did my PE4 install after SP-3.
Good luck, and maybe someone will weigh-in with exact details.
I Rolled back to Windows SP2. Still having same problem. Seems to be related to the .msi file. When I click on the install icon, I get the message that "...the system administrator has set policies that prevent this installation." As far as I know, I'm the system administrator.
Looks like its not Premiere Elements specific. Copy installer to system (not on desktop and C root) and then try to install.
I seem to recall some issues with MS installer. Oh, I wish that I even knew which forum it was - maybe Photoshop. There was a change in the not too distant past, and it seems that MS offered an updated version of installer on their site as a separate download. This cleared up a lot of problems for whichever Adobe program was suffering. Besides LMT's suggestion (often works perfectly with some other Adobe programs suffering from installation issues), I'd go to the MS download page and look for an update to MSI. I wish that my memory was better, as I'd give you some links to the discussions I sorta' recall.