This error often pops up while installing SQL Server Express / Full edition on machine.
- Right Click the folder (say, C:Sql2005) in which you wish to install SQL Server.
- In Tab 'General', click on 'Advanced'
- Uncheck 'Compress contents to save disk space'
- Uncheck 'Encrypt contents to secure data'
and try installing. If this does not work, please log in the comment.