Any other possible fixes?
What Flash drives have you tried? Could well be that someting goes wrong when the files get written to them. Still, since it seems you started out with the original discs on the system, that doesn't seem to be the problem. More likely some security tool is scanning the files and damaging or Windows' own DEP has for some reason been set for cabinet files. So I'd definitely look into that. the version of Windows shouldn't matter. CS3 was developed at the high times of XP, so it primarily was made for that andjust the otehr way around, Vista compatibility is the bare minimum required.
The flash drive I used is a PNY Attache 8gb. But yes, it does seem everything remains fine with the .cab files on both the flashdrive and the disc until they get put on the Xp system...then the .cab corruptions begin.
I'll do as you suggest and try to see if there is some security scanning tool on there that could be causing it, though I don't think I've ever installed one since I never had that system connected to the net (in order to avoid getting any viruses on it). But as you say, could be something within Xp itself that is causing this. I'll see what I can learn about Windows DEP and see if there is some setting therein that is causing this.
If the incvestigation doesn't turn up anything, I recommend you manually download the .NET 1.1 runtimes and possibly the MSInstaller standalone package (alternately: full Internet Explorer) and move it over to the new machine. It may just as well be some DLL registriation hosed up, so the cab files lose their magic and the Installer can't string them together. Both the packages will update sub-components of the MSInsataller which may fix things....