I am desperately looking for a solution to this problem. I manage 60-70 Windows machines and this has been a constant thorn in my side for 2 years now. I've also submitted this is a bug, but am looking for any ideas.
My staff all have Windows domain accounts that run as Power User on their workstation (WinXP SP3). Before Flash 10.1.x or so, Power Users never got the auto-update prompts for Flash; only Administrators did. Somewhere in 10.1 this changed. Currently (up to and including 10.3.183.x, we'll see about 11.0) if a Power User (i.e. any of our staff except for me, my boss, and his boss, who are Adminsitrators) tries to perform the upgrade when auto-prompted, it deletes the old version of Flash (the IE ActiveX control) and then fails to install the new version, leaving the user without Flash. This appears to happen 100% of the time for anyone running Windows as Power User, and affects at least all builds of at 10.1.x forward as far as I can tell. We are all running IE8. I use quite a bit of Group Policy to control different aspects of Windows for our users, but staff aren't locked down too tightly other than not being local Administrator. Specifically, I am not, in general, blocking ActiveX objects. If anyone is seriously interested in investigating, I can share some of the Group Policy Settings with you privately.
I have been repeatedly pleading with all of my users to not attempt to perform an upgrade, but this works about as well as expected. I'm constantly having to reinstall Flash on workstations as Administrator. It is incredibly frustrating. Please help!
a better option is to apply for distribution license. the page is available here - http://www.adobe.com/products/players/fpsh_distribution1.html
most IT departments will then create a group policy to install the player on the networked machines.