1) Open Administrative Tools -> Local Security Policy.
2) Click the "Software Restriction Policies" item on the left tree. If you see on the right side of the window a message that says: "No Software Restriction Policies Defined" then you need to right click the "Software Restriction Policies" item on the left side of the window and select "Create New Policies". Look at the screen shot below:
3) After doing this (or you did not have to), double click the "Enforcement" item in the right side of the window. In the new opened window select the "All users except local administrators" radio button. and apply the changes. Take a look at the picture below:
4) After doing all those still I had the same error. I searched and found another post (http://blogs.msdn.com/heaths/archive/2006/09/22/Enabling-Large-Patches-to-Install.aspx) regarding big patches installation and followed these steps:
Set the DWORD value PolicyScope to 1 in the HKEY_LOCAL_MACHINE\SOFTWARE\Policies\Microsoft\Windows\Safer\CodeIdentifiers key. Run "net stop msiserver" (without quotes). Install the EXE or MSP (if you extracted the MSP from the EXE).
Don't forget to set it back to the old value.
This helped me solve the issue and after few hours of struggling I finished installing the patch. I don't know if you need to do everything I mentioned. Maybe you can apply the last one only and it will work.