Uninstall .net 2.0. When I talked with MS support, I was directed to use MS cleanup utility to uninstall 2.0. Then reinstall 2.0 and the related SP. Use the microsoft cleanup utility. I have uninstalled .net framework and reinstalled with success on many computers including virtual machines.
Well, a few days ago I had .net framework 3.5 updates fail to install in one of my virtual machines. I had to uninstall all versions including SP's including versions, 1, 2, 3 and all .net installations including SP's. Search around MS for uninstall instructions or uninstall 'tools'. Use the uninstall tools to remove previously installed versions. After uninstalling .net framework completely from the VM, I loaded ver. 1, 2, 3 and SP's and it all installed fine.
After reading some of the material available on the links I provided, I open the .net framework folder in my Windows installation. The .net framework 2.0 was installed there, but not the 2.1 SP. So, it is possible .net Framwork 2.1 SP is not needed if version 2.0 is installed.