Hmm... I really am running out of ideas. I did find this in the readme in the "known issues with the installer" section:
a. The installer does not yet have full Windows Vista/2003 support. Most
specifically, the uninstaller may not be able to remove all game files
on these operating systems. These issues will be fixed in a future
release, for the moment please remove leftover game files from your
Virtualstore directory manually after you uninstall Melty Blood ReACT
My best bet is that you may be running it in Vista and it somehow just messes it up when trying to install the patch. I am running an older version of the patch, didn't mind updating with the latest, so they may have fixed that issue with the most recent they got out along with the first MB:AC patch.
Also, if you are running Vista, try disabling UAC. Sometimes it poses a problem when wanting to install games (had it with Fallout 3 and some others).
Anotehr issue, though unlikely, is that your antivirus doesn't like the installer or melty blood (avast! has that problem, happened before and is happening again [at least to me]). Try disabling it and see what happens. I suggest uninstalling previous installations and starting from scratch.
Oh! Now I have another idea! If you made a disc image out of the melty disc, try using daemon tools as the virtual drive manager (or whatever it's called). I remember having issues when wanting to install Tsukihime using MagicDisc.
Other than that, I now am really
out of ideas.
"I settled for that shriek. Those dull vacant eyes... oiled cabbage stench of her...! [...] You know what? I'm sorry if I'm not gonna do this the way you want me to or the way you might. But I will not make an angel out of someone who wasn't an angel...!" -Chief Tyrol, on his beloved wife.
Have you heard about the saying that goes something like "drunk people and kids tell no lies"? Well, that's just a fallacy.