The installation updates the copy of shfolder.dll on the target machine if required. I suspect another process on this machine muct have shfolder.dll open at the time the runtime installation is executed.
Try closing down all other applications on this machine prior to running the setup. Given the same problem occurs with Safe Mode, it must be a fairly fundamental process. You may need to use the process manager to manually shut down unnecessary processes.
We have not received any other reports of this nature, so I suspect this must be a very rare environmental issue.
Please let me know if this machine continues to present a problem.