I answered my own problem in another post, but to anyone that is having repeated problems installing Exchange 2007 SP1 on Windows Server 2008 because it doesn't have permission to write to its own setup logs there is a simple answer: Disable UAC and you will have no more problems. This one had me stumped for a while.
*Note - to disable UAC, it is the same as in Vista: Go to Control Panel | Users, and it is an option in there.