Windows live writer is one of the best blog publishing tool as of now. But it had one of the worst installation tool (for XP at least) and you get many errors during installation. Here is your workaround :
(2) Download and Install latest Windows installer. The latest one at the time of writing this article can be had from here
(3) Download and Install IE 7 from here
(4) Finally, Download and install Windows Live installer from here.
The download links were direct one and were working fine at the time of writing this article.