http://social.msdn.microsoft.com/Forums/en-ZA/netfxsetup/thread/831d8f82-0be5-42b7-a890-cfa539c9dc67
http://www.dotnet247.com/247reference/msgs/68/344691.aspx
Hi all.. I have resloved the issue with the folowing steps
1. Run the .net cleanup utility from http://astebner.sts.winisp.net/Tools/dotnetfx_cleanup_tool.zip
2. Make sure there are no .Net versions from add/remove programs
3. renamed the C:/Windows/Asssembly folder and restart
4. On restart, install the .Net Framework 3.5 from the link http://download.microsoft.com/download/6/0/f/60fc5854-3cb8-4892-b6db-bd4f42510f28/dotnetfx35.exe
That did it for me.