Some anti-virus programs (e.g., McAfee) have this rule that can be invoked under the "maximum protection" settings: PREVENT PROGRAMS REGISTERING AS A SERVICE. If that rule is set to BLOCK, then any attempt to install or upgrade iTunes will fail with an "iPod service failed to start" message.
If you are getting this problem with iTunes, check to see if your anti-virus has this setting and unset it, at least for as long as the iTunes install requires. Exactly how to find the rule and turn it on and off will vary, depending upon your anti-malware software. However, if your anti-virus or anti-malware software produces a log of its activities, examining the log may help you find the problem.
For example, here's the log entry for McAfee:
9/23/2009 3:18:45 PM Blocked by Access Protection rule NT AUTHORITY\SYSTEM C:\WINDOWS\system32\services.exe \REGISTRY\MACHINE\SYSTEM\ControlSet001\Services\iPod Service Common Maximum Protection:Prevent programs registering as a service Action blocked : Create
Note that the log says "Common Maximum Protection: Prevent programs registering as a service". The "Common Maximum Protection" is the location of the rule, "Prevent programs registering as a service" is the rule. I used that information to track down the location in the McAfee VirusScan Console where I could turn the rule off.
After I made the change, iTunes installed without complaint.