If the installer is run in Windows XP/SP3 without selecting the Advanced compiling option, it works fine.  If the installer is run in Windows XP/SP3 and the Advanced compiling option is selected, the following error message is generated during the compile step:

"There is a problem with this Windows Installer package. A program run as part of the setup did not finish as expected. Contact your support 
personnel or package vendor."

The relevant part of the log when the installer fails using the Advanced compiling option is as follows:

--------------------

MSI (s) (4C:B4) [14:41:27:205]: Doing action: CompilePyc
Action 14:41:27: CompilePyc. 
Action start 14:41:27: CompilePyc.
MSI (s) (4C:B4) [14:45:45:528]: Note: 1: 1722 2: CompilePyc 3: C:\bin
\Python26\python.exe 4: -Wi "C:\bin\Python26\Lib\compileall.py" -f -x 
bad_coding|badsyntax|site-packages|py3_ "C:\bin\Python26\Lib" 
MSI (s) (4C:B4) [14:45:45:528]: Note: 1: 2262 2: Error 3: -2147287038 
Error 1722. There is a problem with this Windows Installer package. A 
program run as part of the setup did not finish as expected. Contact your support personnel or package vendor.  Action CompilePyc, location: C:\bin\Python26\python.exe, command: -Wi "C:\bin\Python26\Lib\compileall.py" -f -x bad_coding|badsyntax|site-packages|py3_ "C:\bin\Python26\Lib" 
MSI (s) (4C:B4) [14:47:41:133]: Note: 1: 2262 2: Error 3: -2147287038 
MSI (s) (4C:B4) [14:47:41:133]: Product: Python 2.6.5 -- Error 1722. 
There is a problem with this Windows Installer package. A program run as part of the setup did not finish as expected. Contact your support 
personnel or package vendor.  Action CompilePyc, location: C:\bin\Python26 \python.exe, command: -Wi "C:\bin\Python26\Lib\compileall.py" -f -x bad_coding|badsyntax|site-packages|py3_ "C:\bin\Python26\Lib" 

Action ended 14:47:41: CompilePyc. Return value 3.
Action ended 14:47:41: INSTALL. Return value 3.

--------------------

I believe the cause of this installation failure message is due to the 
syntax of the following command:

C:\bin\Python26\python.exe -Wi "C:\bin\Python26\Lib\compileall.py" -f -x bad_coding|badsyntax|site-packages|py3_ "C:\bin\Python26\Lib"

If this command is run in the Windows XP shell, it yields an error.  If the -x option's args are wrapped in double quotes, it runs ok (except for a syntax error when compiling one of the python source files - I don't remember which one):

C:\bin\Python26\python.exe -Wi "C:\bin\Python26\Lib\compileall.py" -f -x "bad_coding|badsyntax|site-packages|py3_" "C:\bin\Python26\Lib"

So it appears that the Windows XP shell is interpreting the "|" 
characters within the -x option's args as pipe characters and tries to 
pipe the "multiple commands" together.

The simple work around is to not use the Advanced compiling option with this release.  If wanted, the compilation step can be performed manually after the installation completes.

This is fixed as of r79248.