Hey,
I would guess it has something to do with your XP installation. I am running XP and I didn't have any problems installing SFC2. It is strange that you would get that type of error. Have you tried installing OP? Is your SFC2 CD ok? (i.e. can you install the game on another computer?)
Sorry this isn't more help. Hopefully someone else on here will have some more info for you. Good luck with it!
Jim