Sorry, I missed the VS2005 line. You will also get this message if you try to install the wrong package, but that does not appear to be the case here.
.MSI files can be difficult to read, especially since the tool used to debug them (orca.exe) is part of a 250MB Installer SDK download. If you google 'ORCA MSDN' you'll see some hits near the top where just the orca.msi has been reposted.
Anyway, the LaunchConditions table in the installer database for this message says:
(VSPRODUCTDIR AND VSTEMPLATEITEMDIR AND VSENVIRONMENTPATH) OR Installed
Which means (tracing back through the AppSearch and RegLocator tables) that the following registry values need to be found for the launch conditions to be satisfied:
On my machine, these entries have the following values:
Setup\VS\@ProductDir = C:\Program Files\Microsoft Visual Studio 8\
Setup\VS\@EnvironmentPath = C:\Program Files\Microsoft Visual Studio 8\Common7\IDE\devenv.exe
VSTemplate\Item\@UserFolder = C:\Program Files\Microsoft Visual Studio 8\Common7\IDE\ItemTemplates
If the installer is failing to launch with the message you're showing, then it cannot find one of these registry entries. Please verify the entries with Regedit. However, as Ken points out, if you're missing these registry entries and/or the corresponding directories, then something is wrong with your Visual Studio installation.