I was reading VS2008 SP1 known issues file and this issue struck me:
2.1.4 Visual Studio 2008 SP1 installation fails when the Windows Vista sidebar is enabled.
Visual Studio 2008 SP1 installation fails when the Windows Vista sidebar is on.
To resolve this issue:
1. Right-click the Sidebar icon in the notification area, at the far right of the taskbar.
2. Click "Exit".
How can Vista sidebar interfere with VS2008 SP1 installation? This has to be the most peculiar installation issue I have seen in a while. Well, it didn't complain when I installed the SP1.
Go get the long awaited SP1 now.
A warning though (make sure you read IMPORTANT paragraph below the links):
If you previously installed a Visual Studio 2008 Hotfix, you must run the Hotfix Cleanup Utility before installing Visual Studio 2008 SP1. For more information, see Visual Studio 2008 Hotfix Cleanup Utility for Installing Visual Studio 2008 SP1.