The iTunes 5.0.x installers used a *version 11* InstallShield engine. Are you able to get the upgrade to go through if you install a version 11 InstallShield engine, as per the instructions down at the bottom of that InstallShield document?
If no joy there, here's another thing to try. The newer iTunes installers (for iTunes version 7.0.0.70 and above) are not InstallShield based ... so the InstallShield engine is only called on for uninstalling the existing iTunes 5.0.x (in your case). So if we can get your existing iTunes and QuickTime uninstalled, the installation of your new version iTunes version 7 should go through okay.
With that in mind, Next, download and install the Windows Installer CleanUp utility:
Description of the Windows Installer CleanUp Utility
Now launch Windows Installer CleanUp ("Start > All Programs > Windows Install Clean Up"), find any
iTunes and
QuickTime entries in the list of programs in CleanUp, select those entries, and click âremoveâ.
Next, we'll manually remove any leftover iTunes or QuickTime program files:
(1) Open Local Disk (C:) in Computer or whichever disk programs are installed on.
(2) Open the Program Files folder.
(3) Right-click the iTunes folder and select Delete and choose Yes when asked to confirm the deletion.
(4) Right-click the QuickTime folder and select Delete and choose Yes when asked to confirm the deletion.
(5) Delete the QuickTime and QuicktimeVR files located in the C:\Windows\system32\ folder. Click Continue if Windows needs confirmation or permission to continue.
(6) Right-click on the Recycle Bin and on the shortcut menu, click Empty Recycle Bin.
(7) Restart your computer.
Now try another iTunes install. Does it go through properly now?