Does .NET Framework 2.0 SP1 installation fails on your computer ?

"The .NET Framework 2.0 SP1 installation fails on a computer that has the .NET Framework 2.0 installed and that is running Windows XP, Windows Server 2003, or Windows 2000"
When you try to install the Microsoft .NET Framework 2.0 Service Pack 1 (SP1) on a computer that has the .NET Framework 2.0 installed and that is running Windows XP, Windows Server 2003, or Windows 2000, the .NET Framework 2.0 SP1 installation fails.

This problem occurs because Windows Installer must load the cached installation database and all updates when Windows Installer performs any maintenance installations, such as uninstallations. If packages for those updates do not exist in the Windows Installer cache, Windows Installer tries to find the updates from earlier source directories.
The .NET Framework 2.0 SP1 is a major upgrade that uninstalls the earlier version of the .NET Framework 2.0. If Windows Installer cannot find the packages for the earlier installed updates during the uninstall operation, the installation fails with an error message.
If an incomplete rollback occurs, this failure to install may also cause applications that use the .NET Framework to fail.

This problem may occur for one of the following two reasons.
- The Windows Installer cache is missing necessary files
- The hotfix registration or the update registration is corrupted

To fix this problem follow below Hotfix:

Microsoft .NET Framework 2.0 Registration Correction Tool