Had a problem loading Windows Server 2003 Service Pack 2 (SP2) onto a Dell PowerEdge this week. First error was that a file couldn't be copied, check permissions. I had to cancel that install and it rolled back ... but I guess not well enough. When I tried to reinstall I got this error:
Service Pack 2 setup error "failed to install catalog files"
Retrying the setup (again), clearing temp files, checking Event Viewer didn't help at all. Finally found this useful article at Microsoft, KB822798. Ignore the majority and jump straight to Method 9, that did the trick and the install completed ok.
Interestingly the original error came about from a file read error which must have appeared whilst SP2 was unpacking. I was able to get over the read error by unpacking to another temp directory, finding the file and overwriting the faulty one. You can unpack to a temporary directory by doing a Start > Run (delete any entry already there) then drag the SP2 file to the Run box and add -X (you may also need quotes if there are any spaces in the directory names)
e.g. Start > Run >
"c:\downloaded files\microsoft\WindowsServer2003-KB914961-SP2-x86-ENU.exe" -x