Here is a woring solution. I had the same problem but this worked:
1. Uninstall Office completely.
2. Using RegEdit, navigate to HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Office
key. Highlight it, and go to File-Export to export that branch of the
registry to a safe location. Once exported safely, DELETE the Office key
with all subbranching. This creates a clean slate for a reinstall of Office
from any location.
After rebooting, I suggest you copy the install files to a hard dive
location, and do the install from there. At the end, leave the installation
files in place, and you'll never need to pop an Office disk in again for
updating.
SP 2 should install without hickups after doing all this.
Hope this helps,