I came across this problem recently at my job.  We recently migrated from Windows Server 2003 to Windows Server 2008 and during this process we were also upgrading our desktops to Windows 7.

We started seeing this MSI error randomly once we moved a large majority of user ‘home drive’ shares to our new Windows 2008 Server.  From my understanding, MSI files verify free space of the users “Home” directory (My Pictures, My Music, etc).  Since we use folder redirection it looks to the full UNC path which is in the registry under the following path:

Software\Microsoft\Windows\CurrentVersion\Explorer\User Shell Folders

If you change all the values pointing from the UNC path to ‘%userprofile%\Path’ the error will go away but this needs to be done each time the user logs on and off.  But, that will only happen if you use folder redirection.

After doing some research and testing I realized that Windows 7 + Windows Server 2008 requires a specific security change to the folder or else this error will constantly occur.  Under Advanceed > Change Permissions for “Authenticated Users” or “Domain Users’ (We used Auth. Users) we needed to add “Read Attributes” and apply it to “This folder only”.

The error should go away after you make this change.  Making this change WILL NOT allow for anyone to see the given folder.  It is simply an attribute.  We tested and confirmed this in our environment.