Yup, the notorious zune install error. One of our member, who is also part of our programming team, has figured out a fix/workaround this.

1. Plop in your installation CD that came with the Zune.
2. Go to "Start --> Run"
3. Type in "D:\Packages\ZUNE\msxml6-x86-ENU(Zune).exe"
4. Then type in "D:\Packages\ZUNE\Zune-x86-ENU.exe /Q" (both without quotes)

Remember to replace the "D" with the drive that the CD is in. It won't have a foreground window so you won't know what's going on, but it should be installing in the background. You'll know your done when your zune says "Connected."  After your Zune changes to the "Connected" screen, restart your computer. You're done!

Thanks SC_Modder!