This is an interesting issue that I ran into, and took some time to find out the steps for resolution. What was happening was the customer was receiving repeated prompts for installing KB 2463332 for Windows Internal Database. It could, of course, have been any other update for the windows internal DB as well.

Now, what sets this scenario apart from normal troubleshooting ones is the absence of our sweet old SQL setup logs. So, to troubleshoot the issue, here’s what you need to do:-

1.Download the update from
http://www.microsoft.com/downloads/en/details.aspx?FamilyID=34D4CE5C-23D1-47D2-B9D2-AAB32DB41B19

2.Extract the exe using /x (i.e. run the exe from the command prompt, with the /x switch, which will give you a prompt for the location you want to extract it to).

3.Run the following command from the command prompt:-
msiexec /i SSEE_10.msi CALLERID=OCSetup.exe REINSTALL=ALL REINSTALLMODE=vomus /qn REBOOT=ReallySupress /l*v wsee.log

4.Check the wsee.log. You may find something like this(or even a different error, but at least now you have one to proceed on):-
GetServiceUserGroup failed for MICROSOFT##SSEE, 5
Error Code: 0x80070534 (1332)
Windows Error Text: No mapping between account names and security IDs was done.
Source File Name: sqlca\sqlcax.cpp
Compiler Timestamp: Thu Dec 9 14:16:30 2010
Function Name: SetInstanceProperty
Source Line Number: 1224

Error Code: 1332
MSI (s) (A0!E8) [13:14:54:064]: Product: Windows Internal Database -- Error 29528. The setup has encountered an unexpected error while Setting Internal Properties. The error is: Fatal error during installation.

Error 29528. The setup has encountered an unexpected error while Setting Internal Properties. The error is: Fatal error during installation.

5.Go to HKLM\software\microsoft\microsoft sql server\mssql.2005\setup and clear the contents of the FTSGroup and SQLGroup keys. (this is obviously based on the exact error found in step 4)

6.Re-run installation using the same command.

7.You may find something like this in the log:-
MSI (s) (A0:F8) [13:24:48:076]: Skipping action: UpgradeRestoreServiceStatus.D20239D7_E87C_40C9_9837_E70B8D4882C2 (condition is false)
MSI (s) (A0:F8) [13:24:48:076]: Doing action: RemoveExistingProducts
Action ended 13:24:48: SetProductNameInstance. Return value 1.
MSI (s) (A0:F8) [13:24:48:076]: Skipping RemoveExistingProducts action: current configuration is maintenance mode or an uninstall
Action start 13:24:48: RemoveExistingProducts.
MSI (s) (A0:F8) [13:24:48:076]: Skipping action: RemoveSqlProducts.D20239D7_E87C_40C9_9837_E70B8D4882C2 (condition is false)
MSI (s) (A0:F8) [13:24:48:076]: Doing action: ChangeServiceConfig.D20239D7_E87C_40C9_9837_E70B8D4882C2
Action ended 13:24:48: RemoveExistingProducts. Return value 0.
MSI (s) (A0:04) [13:24:48:092]: Invoking remote custom action. DLL: C:\WINDOWS\Installer\MSID735.tmp, Entrypoint: ChangeServiceConfig
Action start 13:24:48: ChangeServiceConfig.D20239D7_E87C_40C9_9837_E70B8D4882C2.

Function=ChangeServiceConfig

Doing Action: ChangeServiceConfig
PerfTime Start: ChangeServiceConfig : Mon Feb 21 13:24:48 2011

Service name: MSSQL$MICROSOFT##SSEE
Startup type = 0
Status = 3

8.Run install again, you may find something like this in the logs:-
Property(S): SqlUpgradeMessage = Service 'MSSQL$Microsoft##SSEE' could not be started. Verify that you have sufficient privileges to start system services. The error code is (3417)
Property(S): UpgradeInstruction = Start service MSSQL$Microsoft##SSEE with parameters -m SqlSetup -T4022 -T4010
Connect to SQL instance RD-SERVER2\MICROSOFT##SSEE as sysadmin
Launch SQL statement USE master
Launch script file C:\WINDOWS\SYSMSI\SSEE\MSSQL.2005\MSSQL\Install\sysdbupg.sql
Launch script file C:\WINDOWS\SYSMSI\SSEE\MSSQL.2005\MSSQL\Install\DbEngine_hotfix_install.sql
Launch script file C:\WINDOWS\SYSMSI\SSEE\MSSQL.2005\MSSQL\Install\systemdbsig.sql
Stop service MSSQL$Microsoft##SSEE
MSI (s) (A0:EC) [13:32:02:359]: Note: 1: 1729
MSI (s) (A0:EC) [13:32:02:359]: Product: Windows Internal Database -- Configuration failed.

MSI (s) (A0:EC) [13:32:02:359]: Cleaning up uninstalled install packages, if any exist
MSI (s) (A0:EC) [13:32:02:359]: MainEngineThread is returning 1603
MSI (s) (A0:B8) [13:32:02:468]: Destroying RemoteAPI object.
MSI (s) (A0:74) [13:32:02:468]: Custom Action Manager thread ending.
=== Logging stopped: 2/21/2011 13:32:02 ===
MSI (c) (B4:B0) [13:32:02:468]: Decrementing counter to disable shutdown. If counter >= 0, shutdown will be denied. Counter after decrement: -1
MSI (c) (B4:B0) [13:32:02:468]: MainEngineThread is returning 1603
=== Verbose logging stopped: 2/21/2011 13:32:02 ===

9.Check the eventlogs. You may find something like this:-
Event Type: Error
Event Source: MSSQL$MICROSOFT##SSEE
Event Category: (2)
Event ID: 17207
Date: 2/21/2011
Time: 1:34:50 PM
User: N/A
Computer: RD-SERVER2
Description:
FCB::Open: Operating system error 5(Access is denied.) occurred while creating or opening file 'C:\WINDOWS\SYSMSI\SSEE\MSSQL.2005\MSSQL\DATA\master.mdf'. Diagnose and correct the operating system error, and retry the operation.

For more information, see Help and Support Center at http://go.microsoft.com/fwlink/events.asp.
Data:
0000: 37 43 00 00 10 00 00 00 7C......
0008: 1b 00 00 00 52 00 44 00 ....R.D.
0010: 2d 00 53 00 45 00 52 00 -.S.E.R.
0018: 56 00 45 00 52 00 32 00 V.E.R.2.
0020: 5c 00 4d 00 49 00 43 00 \.M.I.C.
0028: 52 00 4f 00 53 00 4f 00 R.O.S.O.
0030: 46 00 54 00 23 00 23 00 F.T.#.#.
0038: 53 00 53 00 45 00 45 00 S.S.E.E.
0040: 00 00 00 00 00 00 ......

10.Go to C:\WINDOWS\SYSMSI\SSEE\MSSQL.2005\MSSQL\DATA\ and give full control to Network Service (the service account of the windows internal database service) on the Data folder.

11.Run install again. You should find "Configuration completed" in the logs this time.

The service should come online after that.

If you find an "Access denied" error message related to default traces in the event logs, go to C:\WINDOWS\SYSMSI\SSEE\MSSQL.2005\MSSQL\Log and give full control to Network Service (the service account of the windows internal database service) on the Log folder.
After this, reboot the box, and try again.

Hope this helps.