I ran into a computer with Windows XP and I got the following error while trying to install a new Windows application:
This installation package cannot be installed by the Windows Installer service. You must install a Windows service pack that contains a newer version of the Windows Installer service.
I did not have time to install all automatic updates or install the whole service pack, so I downloaded a Windows hotfix from here. The file is named WindowsXP-KB942288-v3-x86.exe. I installed it and the program could be installed without problems.