keywords:
Microsoft .NET Framework, Version 1.1 Service Pack 1
Security Update for Microsoft .NET Framework, Version 1.1 Service Pack 1 (KB886903).
Cannot install Microsoft .NET Framework 1.1 Service Pack 1

Background:
For the last year I've not been able to install the Microsoft .NET Framework 1.1 Service Pack 1. I read many, many articles relating to the topic, none of which helped.
This article , like so many others, requires both time and expertise, but still fails to solve the problem.

If you Google it, you will find that there are a lot of people with this problem. I don't know if it's the same problem I'm having, but the solution I will present here has not yet been mentioned on any sites I've visited to date and fixes the problem.

For the record, I tried most the solutions out there, plus many of my own creation, including:
uninstalling and reinstalling,
uninstalling, deleting all associated registry keys and reinstalling
uninstalling Visual Studio
Downloading the exe installers from Microsoft and running those
Windows Update
Safe Mode
Etc., etc., etc.

Solution:
The solution is deceptively simple.
Basically:
o) download the install exe from Microsoft
o) run it with the switch /Xp to extract the .msp file
o) run the Windows Installer on the .msp file directly.

Step by step for the Microsoft .NET Framework 1.1 SP 1:
1. Download the file "NDP1.1sp1-KB867460-X86.exe" from Microsoft and save it into a folder like: C:\TEMP\
2. open a command window, and execute the program as follows:
C:\TEMP\> NDP1.1sp1-KB867460-X86.exe /Xp:C:\TEMP
This will unpack the .msp file to the C:\TEMP directory. This should result in something like C:\TEMP\S867460.msp
3. Now, from the Windows Explorer, double click the .msp file and the Windows Installer will load and run it.

That's it. You will have to agree to the EULA, and confirm that you want to install the service pack, but after that all should be well!!

Now, after successfully installing the .NET Framework 1.1 SP 1, I then found that Windows Update wanted to install a related Security Update: Security Update for Microsoft .NET Framework, Version 1.1 Service Pack 1

This security update failed in the same way as the original SP1, so I tried the same technique described above, and it worked fine.

Step by step for the Security Update for Microsoft .NET Framework 1.1 SP 1:
1. Download the file "NDP1.1sp1-KB886903-X86.exe" from Microsoft and save it into a folder like: C:\TEMP\SECURITY
2. open a command window, and execute the program as follows:
C:\TEMP\SECURITY \> NDP1.1sp1-KB886903-X86.exe /Xp: C:\TEMP\SECURITY
This will unpack the .msp file to the C:\TEMP\SECURITY directory. This should result in something like C:\TEMP\SECURITY\M886903.msp
3. Now, from the Windows Explorer, double click the .msp file and the Windows Installer will load and run it.

Why it works this way:
I can only speculate that the way in which Microsoft packaged this particular Service Pack and Security Update causes a specific behavior in the Windows Installer which is not compatible with certain security (or other) settings on some computers.

Related articles – none of which work:
http://support.microsoft.com/kb/889109
http://forums.techarena.in/showthread.php?t=251897
http://www.dotnet247.com/247reference/msgs/58/291503.aspx
and many others.

PS
I hope this works for you.. I spent many hours messing with this and cursing Microsoft :p