I have since solved the problem. It appears that I didn't have Visual Web Developer installed, It would be much better for the install program to display what the problem was in an easier form, Basically MVC 3 was failing to install but with no reasonable
explanation of why.
On doing a web search there are a few people with the same error recently.
Marked As Answer byCaptain_SpankTuesday, December 20, 2011 1:35 PM
I had this situation too. Simplest solution is to turn on (probably, it has been turned off) Web Developer component in VS. After that Cloud project template appeared and Azure SDK and Tools has been installed correctly.