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

  1. Start the registry editor (regedit.exe)
  2. Move to HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion
  3. Double click on CurrentVersion that is in the right hand pane
  4. Change 4.0 to 3.5 and click OK
  5. Close the registry editor

You should now be able to upgrade.