While running a .Net 4.0 application, you find the below error message:

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MyApp.exe - .NET Framework Initialization Error
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To run this application, you first must install one of the following versions of the .NET Framework:   v4.0.30319 Contact your application publisher for instructions about obtaining the appropriate version of the .NET Framework.
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OK  
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I found that mscoree.dll along with few other DLLs were still .Net 2.0 version under windows\system32 folder. .NET Framework 4.0 setup was successful but it failed to update mscoree.dll The file %windir%\system32\mscoree.dll and/or %windir%\syswow64\mscoree.dll has a file version of 2.0 instead of 4.0 This particular issue occurs on Windows Vista, Windows Server 2008 and Windows 7.  Windows6.1-KB958488-v6001-x64.msu is the one that is responsible for updating mscoree.dll to version 4.0 on Windows Vista and later versions of Windows. 

In order to resolve this issue, try running the System Update Readiness Tool http://support.microsoft.com/kb/947821  If it doesn’t resolve the issue, then try uninstalling KB958488 and reinstall KB958488 on the system.