After much frustration trying to get Visual Studio 2005 Service Pack 1 installed on a Windows Server 2003 machine, I found Heath Stewart's Post describing the problem and solution. His post directly suggests that you remove the machine from a Domain, if it is part of one. I had no option of doing this (I am not domain admin), so I attempted to run his automation script without removing my system from the domain - it appears to have worked successfully.
I would recommend using Heath's automation script, for anyone experiencing this problem. Create a .BAT or .CMD file and place it in the same folder as the SP1 installer. The contents of the file should be:
rem It is recommended you leave a domain and reboot before running this script (Note - I did NOT do this and it worked)
rem Backup the registry key before changing it to save the current values
reg export HKLM\SOFTWARE\Policies\Microsoft\Windows\Safer\CodeIdentifiers "%TMP%\safer.reg" /y
rem Set the new value and stop Windows Installer, which will automatically restart when the patch gets installed
reg add HKLM\SOFTWARE\Policies\Microsoft\Windows\Safer\CodeIdentifiers /v PolicyScope /t REG_DWORD /d 1 /f
net stop msiserver
rem Replace the name of the patch below according to which patch you downloaded
rem This exmple silently installs the patch with verbose logging enabled
start /wait VS80sp1-KB926601-X86-ENU.exe /L*v+ "%TMP%\VS80sp1-KB926601-X86-ENU.log" /quiet
rem Delete the new value and restore previous registry values for SAFER
reg delete HKLM\SOFTWARE\Policies\Microsoft\Windows\Safer\CodeIdentifiers /v PolicyScope /f
reg import "%TMP%\safer.reg"
Run that script file from the folder that your SP1 installation file is in, and an hour (or two or three) later, you should be good to go.