Using the .NET Framework cleanup tool to completely uninstall the previous 2.0 version that you have on your machine. It can be accessed at http://files.youdownload.com/-NET-Framework-Cleanup-Tool-26-11-2008-download-165a16a2fc.htm
Then download/install the full .NET Framework 3.5 Redist from here http://download.microsoft.com/download/6/0/f/60fc5854-3cb8-4892-b6db-bd4f42510f28/dotnetfx35.exe. This should hopefully solve your problem.
