I get the same error with server 2003 SP2, .Net 2.0 SP1. Final package, not the RC as above. I don't think it has to do with domain policies, since I used the administrative account (which I've exempted from all policies to make installs function). I did attempt the troubleshooting steps in the sticky, just in case. I'll try to install 3.10 in the meantime.
This is the first error message:
System.UnauthorizedAccessException: Access is denied. (Exception from HRESULT: 0x80070005 (E_ACCESSDENIED))
at PaintDotNet.SetupNgen.SHGetFolderPathW(IntPtr hwndOwner, Int32 nFolder, IntPtr hToken, UInt32 dwFlags, IntPtr pszPath)
at PaintDotNet.SetupNgen.SHGetFolderPath(Int32 nFolder)
at PaintDotNet.SetupNgen.MainImpl(String[] args)
at PaintDotNet.SetupNgen.Main(String[] args)
And this is from the event log: