I have had a heck of a time lately with the SP1 for the 3.5 framework. Where I work and at home, the installation has failed on a total of FIVE computer! Five! Each time was a little different. The Google was able to give me a solution for most (usually silly dependencies failing, such as SP1 for Visual Studio), but one, in particular, was a little more devious, on a 64-bit 2008 server.
I kept getting 1395, which is a pretty generic error. By digging through a lot of logs, I saw the error was occurring during the installation of the Visual C 9.0 Redistributable, so I downloaded it to install it manually. I immediately got an error when it was trying to install an assembly.
Error 1935.An error occurred during the installation of assembly 'microosft.vc90.atl'
Included in the message was also HRESULT: 0x80070005, which indicates "access is denied."
I ran Procmon and found there is a folder where access was denied for SYSTEM. The folder where access is denied is in winsxs (C:\Windows\winsxs\InstallTemp) and the default permissions indicated that read only access is probbaly normal for SYSTEM, as it had full control for TrustedInstaller. So I'm guessing that it may actually be a bug in the VC90 installer, but either way, I added Full Control to SYSTEM and the problem cleared.