I actually don't mind it if all other options fail, but I certainly didn't feel like stating something technically still illegal on a game distributor's forum.

The only reason the legality is even debatable is because of how corporate-dictated copyright law has become in the west.
As for GOG, how do you think some of these games became DRM-free? So called 'scene' cracks is how. The logic there is that you bought and paid for the game so you get it in a playable state. Same in this instance.

Oh, I'm entirely in agreement. If you'll note though, there was an edit immediately after my post. I realized that I hadn't protected my statement, but I guess GOG is pretty decent, and likely understands this sort of situation. It's just a habit of mine to protect myself from the same corporate people that you mention. Anyways, let us not derail this man's thread. I hope he can get the thing to work.

Sure, if I can get the game to install.
I did consider torrenting it, but then, it doesn't make sense if I can't get the game to install from the discs themselves. I'm just thinking screw it, if I still can't solve this shit by tonight, I'm gonna get a refund from my bro's friend and return him the game, then spend it elsewhere. $25 can get me the entire Tex Murphy series on GOG.com. I spent too many hours today trying to get this fucking game to work, and I really can't be arsed anymore already.
Speaking of legal issues, I'd appreciate it if we could keep that out of this thread, since this is going to derail the whole thread. I'm going to give this one last try tonight using Daemon Tools, and Stuff's method, and if it still screws up, the hell with it.

Oh noes, had a game saved where I just emerged from the prison . . . can't . . . stop . . . playing . . . . noooooooooooooo
I recommend the combat mod (Sami's? might be a better one now) and the double jump mod.
Edit: I especially like the Atmospheric Sounds 3.0 plugin . . . probably a much better plug-in available now but . . . it was a great plug-in in its day . . =)

You could try to use the latest version of Universal Extrator to manually extract all the files from the InstallShield installer or alternatively download InstallShield Pro Trial version and try to do the same using the Cabinet file viewer/extractor tool that come with it.
However I don't know if those work with Securom "protected" installer.
If you have virtual machines you could try installing the game in a virtual machine and then copy the install folder back to you main computer. I know it's kind of an overkill but I mention it just in case you happen to have some virtual machines with XP installed on them.

**** this. I give up.

Nope.
Eh. I'll try using Alcohol 120.

Well, just thought of this . . . I had a game that wouldn't install with similar problems.
It was trying to install using autorun, I shut that down and opened Windows Explorer, navigated to the setup.exe on the DVD, right clicked it, clicked "Run as an administrator" and all was well. Just a thought.
I would also suggest the basic install outside of Program Files as well . . .

I tried that too, no luck with that. I must have exhausted almost every possible trick in the book.
On the bright side, my bro's friend happens to have a copy of the game too - which was why he sold me this copy in the first place. I'll use his DVDs and see if I have any luck. Could be a problem with the DVDs, as lackoo said.
The hell with SecuROM.

Hope the disk turns out to be the problem. I still have my unopened disk of Shivering Isles, unopened because I had finally removed all traces of SecuRom from my system and didn't want to reinfect it.
You got me started on Oblivion again, just finished DL'ing Oscuro's Oblivion Overhaul 1.33, will try to get that applied and maybe start a new game. . . =)

I just tried installing it on my wife's machine from my retail GOTY disks and it worked fine. She's running Win7 x64 with no virtual drives or burning software installed but imgburn. Her only installed optical drive is an IDE one - not sure if the installer doesn't like some SATA drives.
The reason I have a problem installing on mine is because I've always ran my optical drive in an external enclosure since usb 2.0 came out. I like the flexibility of keeping it turned off until needed and using it on other machines. Some copy protection likes to refuse this hardware config even in the absence of virtual drives or cloning software.
As mentioned earlier, since the copy protection is only tied to the installer, you could try installing on your machine with all cloning and virtual drive software uninstalled to see if that works. After install you can just add them back.
Out of curiosity, what is the value of the reg key "ImageState" found at:
"HKEY_LOCAL_MACHINE-SOFTWARE-Microsoft-Windows-CurrentVersion-Setup-State"
(dashes are backslashes because forum was screwing up) right click that key and select "modify" to see it's value.
edit: I attached screenshots

Yeah thanks for the help anyway!

Strange, I don't have the State key.