I just had this happend to me. Asus EeePC 1005HAB, clean Win XP SP3 install, just official drivers installed.
I went after Piedrikos trail and yes, I used explorer to browse to defraggler setup folder and ran it from there. After reading his comment I closed explorer and started total commander and ran setup with it. This time installation went through without a hitch.
There's definitely something in defraggler setup getting in fight with explorer from XP. This morning I tried Win7 on this same machine and defraggler installed fine using Win7 explorer.
