Have you tried re-installing the Windows Installer?
The most common cause of this error is the default temporary folder (%temp%) having insufficient permissions assigned to it.
Follow this, it should work for u too.
(For Windows 7 Ultimate 64bit. Should be the same for other versions)
Apparently, you must have Permissions set for 'SYSTEM' in 2 Temp Folders.
It seems that not having set the right permissions set in any of these folders will not allow microsoft installer to read the files, even though they are already inside.
So, they work in tandem:
I had an error that stated that it was the file in C:\Windows\Installer that could not be read.
Well, I checked and full control was given to 'SYSTEM' in the installer folder, but the problem was fixed after I gave 'SYSTEM' permissions for the C:\Users\<Username>\AppData\Local\Temp
How to add permissions:
1. Right click folder - Properties - Security tab
2. In 'Group or usernames', you should have 1. Your account name and 2. SYSTEM
3. If SYSTEM is missing, click 'Edit...', then 'Add...'
4. In 'Enter object names to select', key in 'SYSTEM' then click OK
5. Click on 'SYSTEM' and make sure 'Full Control' is checked in the permissions window
If you can't find the folders
You'll need to show them hidden folders.
1. Open any window...IE 'My Computer'
2. Click Organise -> Folder and Search Options -> View -> Check 'Show hidden files, folders, and drives'