I encountered the "The windows installer service cannot update one or more protected windows files" error upgrading some computers to Office 2007 from 2003.
Event viewer reveals the culprit: the fp4autl.dll file is missing. Just copy it from another computer and put it in %SystemDrive%\program files\common files\microsoft shared\web server extensions\40\bin\ and restart the installation.
The "common files " folder can be different if you use a non-english Windows XP. E.g. on a french XP it is "fichiers communs".
Thanks to http://blogs.developerfusion.co.uk/blogs/thushan/archive/2006/11/25/1493.aspx for the tip.