Copy everything to the C:Drive
and install it from there
If Phillip's suggestion does not work, you might want to check two things:
1.) that you DO have adequate space on your C:\
2.) that you are logged-in as an Administrator
I cannot read the program's message clearly from your post of the message.
What browser are you using as your default browser?
From my experiences with Adobe Premiere Elements downloads and my Windows XP SP3, I find the browser choice to be critical. My default browser is Mozilla Firefox which spells problems for me with that download. But, if I made Internet Explorer 6 my default browser for the occasion, just followed the instructions and no problems....success. (I have not upgraded Internet Explorer to 7 or 8, because of associated problems with my old faithful Outlook Express.)
You may want to check out that factor. Please let us know the outcome.