Hi,
I have tried updating Adobe AIR from 17.0.0.124 to 17.0.0.144 on Windows XP SP3 and its working fine for me.
Seems to be a permission issue for you or may be any conflicting process running in the task manager.
Please try to kill all the "Adobe AIR installer" and "msiexec.exe" process from task manager and try again.
If still its failing, Installation logs can be found at : C:\Documents and Settings\username\Local Settings\Application Data\Adobe\AIR\logs
Note : You have to enable hidden files and folders to view Local settings folder under your username directory.
-Varun