I may have the solution. I did a quick Google search, and found some other threads like this one. Here's a quote from a guy who figured it out:
YAY, I DID IT!!!!!
I just went to my computer/properties/advanced/environment variables
then changed the directories of temp and tmp to C:\temp
Works Fine Now
The system he was using had similar specs to yours.
Let me know if this is any help.
EDIT: Also, try running it in compatibility mode of windows 95. To do this, open my computer, right click on your Cd drive, click "Open" not "AUTOPLAY" now, right-click "setup.exe" and click "properties" now click "compatibility" and select windows 95.
Google Is Your Friend. Use it.
-Smart People (not just me)