A. A. Microsoft have confirmed this to be a problem with the software, and more information can be found in knowledge base article q154538 at http://support.microsoft.com/support/kb/articles/q154/5/38.asp .
A workaround is available, as the setup procedure checks the registry entry HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\CurrentVersion for the version number, and only upgrades if the version is 3.1 ,3.5 or 3.51. You can therefore edit this entry and change the current version number
- Start the registry editor (regedit.exe)
- Move to HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion
- Double click on CurrentVersion that is in the right hand pane
- Change 4.0 to 3.5 and click OK
- Close the registry editor
You should now be able to upgrade.