i would try to boot to a safe mode command prompt. You can try to extract the file from the CD using these instructions:
Generally, the extract command has the following form:
extract source path\ file /L c:\windows\command
For example, if the source path is C:\Cabs, the extract command is
extract drive:\cabs\file /L drive:\windows\path
where drive is the drive on which Windows is installed (typically drive C), path is the destination folder for the extracted file, and file is the file that you want to extract.
Type the following command, and make the appropriate substitutions as previously noted:
extract source path\ file /L c:\windows\command
the file resides in the c:\windows\system32 folder. you will want that to be the destination of the extraction. you will need to use X:\i386 as destination where X is you CD rom drive.
If this does not work, you may have a faulty CD, CD rom drive, etc. Long story short, either something is happening in your copy process.......files being corrupted, or the media itself is faulty. Usually when the installation fails like this you have one of the above issues.
You can try to copy the contents of the CD to the hard drive and run setup from there, either at command prompt or from windows.
good luck
- Surfer