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Cleaned CD, found no appreciable scratches.
Disabled both Avira AntiVir and the Comodo firewall -- got the same error message.
Tried double clinking on setup.exe got the same error message.
Also tried going through Start, Run, D:\setup.exe and got the same error message.
Just for kicks I tried running the installer on:
MS Streets & Trips 2006 and Mechwarrior2 from MicroSoft -- had to manually start them (double click setup.exe) but both installers started without problems.