"Windows cannot access the specified device, path, or file..."

Having compressed my virtual disks, I've moved on to upgrading the guest operating systems on my three virtual machines from Windows 2003 to Windows 2008. Seems simple enough - set up a shared folder to the source files on the host machine and run SETUP.EXE....

"Windows cannot access the specified device, path, or file.  You may not have the appropriate permissions to access the item."

I check the NTFS file permissions - wide open. 

Browsing the Internet, I find disabling "Internet Explorer Enhanced Security Configuration" is a solution.

Uncheck the box and Setup now runs!

I switch to the 2nd machine and see the same situation.

On the 3rd, though, which is a domain controller, "Internet Explorer Enhanced Security Configuration" is installed but Setup works fine. All machines are logged in with the same domain administrator account. A mystery.

Looking at

(KB article 815141) Internet Explorer Enhanced Security Configuration changes the browsing experience

I see that the Enhanced Security Configuration is applied to "Upgrading the operating system" for administrators but that is for Terminal Services.

I had a chat with a colleague in the Windows team and we both agreed that I'd changed something but we weren't sure what (and didn't have the time to waste on working out why things were different). If anyone knows the specific security setting that stops Setup working then please let me know.

So I now have three VMs all happily upgrading to Windows 2008 (once I worked out the right product keys to use and freed up adequate disk space and run ADPrep on the domain ...)