While preparing a new VPC image for our new development standards using BizTalk 2010, I’ve encountered an error  during the installation of SQL Server 2008 R2 with error code 2337;  even though the service is installed when I tried to start the SQL Service it throws out a faultexception about sqlsrv.exe.

As it turns out the problem lies with the Capture ISO feature of the Virtual PC 2007 itself, so to solve this I’ve used 7-Zip to extract the contents of iso file then shared the folder and ran it from there.