Visual Studio setup fails to launch when SAP GUI client is installed

I have heard of a few cases where Visual Studio .NET 2002, 2003 or 2005 setup fails after launching the main setup.exe launcher screen and clicking on the first link to start the setup process. The error dialog that appears has the title Setup Initialization Error and an error string that looks something like the following:

Setup cannot access the required initialization file 'C:\PROGRA~1\SAP\FRONTEND\SAPGUI\FILC\ODBC\AUNCHER="C:\DOCUME~1\USERNAME\LOCALS~1\TEMP\"'.

There is a compatibility issue that prevents Visual Studio setup from being able to copy itself to the %temp% directory and relaunch itself if the SAP GUI client application is installed on the computer. The telltale indication that you've hit this problem is the \SAP\FRONTEND\SAPGUI\ information in the path listed in the error dialog during VS setup.

As a workaround, you can temporarily uninstall the SAP GUI client, install Visual Studio and then re-install the SAP GUI client if needed.