I upgraded from PDN3.08 and I also encountered the 1603 error. I previously had PDN2.1b installed before upgrading to pdn3.08. In order to get around this error I ran the repair file from both the 2.1b and 3.08 folders. After running the repair file twice pdn told me the staging folder was missing for 2.1b so I copied the 3.08 staging folder into the 2.1b folder. After I did this I was able to run the upgrade with no problems.
I ran all of the other fixes before using some "shade tree mechanikin'" to repair my install issue. Yes, I made sure windows installer was running. Yes, I made sure I had the correct version of windows installer. I guess there was a screwup when I upgraded from 2.1b to 3.08