windows update problem....

hey, my grandfather just gave me his old laptop that he has not used in along time and I was trying to update it and am having alot of trouble...
Its a Windows XP SP1. which is part of the problem...
I have Windows update turned ON and it says I need to update "Microsoft windows installer 3.1" so I download it and then hit install and it works for a bit and then says "the following were unable to be successfully installed--Microsoft windows update 3.1 "
Heres a screen shot...even though it says "must be restarted to take effect" it DOES NOT WORK:



so I reboot and the above process repeats its self over and over.
well, to try something different I googled that program that it is trying to update and downloaded in manually and installed it...and it said "access denied ".

I want to download SP2 but I figure I have to get all the updates until I get to a point where its ready to get the SP2 update...I just can't install this one.

it is an Acer, 1gb RAM,

 

lol for tech support from Acer.

 

so can anyone help me out with this??