If you have programs that require .NET Framework 1.1 support, then the Service Pack is important.
For help with your issue, you need to provide full install logs as follows:
collect your install logs with this:
http://aka.ms/vscollect
After you run Collect.exe, you'll find vslogs.cab in your %temp% directory. Please upload vslogs.cab to a public site, like SkyDrive, and post the link here.
You should also verify your .NET Framework 1.1 with this tool:
http://blogs.msdn.com/b/astebner/archive/2008/10/13/8999004.aspx
Run the tool with .NET 1.1 selected, then post the first 15 lines AND the LAST 15 lines of the tool log here.