SQL Server 2008 setup Error - Microsoft .NET Framework 3.5 installation has failed. I know i have it installed already!

I recently worked with a customer who ran into an interesting situation. The issue deals with SQL Server 2008 RTM setup. He is trying to install SQL Server 2008 Enterprise on a Windows 2008 x64 box. As soon as we click ‘setup.exe’, we get below pop-up. When we check from Control Panel –> Add/Remove Programs, I can clearly see Microsoft .NET Framework 3.5 SP1 installed.Then why this error?Started