Try to enter the path you want to install to manually i.e: (probably)
C:\Program Files\Microsoft Games\Microsoft Flight Simulator X\ in the setup wizard
DO NOT use the %Program Files% tag.
It sounds like this will not work, however.
Click Start, and type regedit. Press enter and enter administrator password if necessary.
Navigate to: Computer\HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\Current Version
Make sure the Current Version folder looks as it should. Here is an image of a working Current Version folder:
If your ProgramFilesDir, ProgramFilesPath or CommonFilesDir is different, correct it or if unsure, post back. In particular the ProgramFilesPath SHOULD BE REG_EXPAND_SZ. If your ProgramFilesPath is REG_SZ, change this to REG_EXPAND_SZ. This corruption is quite common. If necessary, make these registry entries.
Try your FSX installation again. If it still does not work, try copying your entire DVD to your desktop (or wherever) and have a look through the directories for strange symbols, signs of a corrupt disk. This will take a while to copy.
If you can and these steps do not work, please can you post the FSX install log file and messages in event viewer. Post back if these steps do not work or you don't know how to do any of the above.
1 x 640Gb (SATA 300)
Western Digital: WDC WD6400AAKS-75A7B0
1 x 1Tb (SATA 600)
Western Digital: Caviar Black, SATA 6GB/S, 64Mb cache, 8ms
Western Digital: WDC WD1002FAEX-00Z3A0 ATA Device
PSU
Stock PSU - 375W
Case
Dell XPS 420
Cooling
Stock Fan
Mouse
Advent Optical ADE-WG01 (colour change light up)
Keyboard
Dell Bluetooth
Internet Speed
120 kb/s
Other Info
ASUS USB 3.0 5Gbps/SATA 6Gbps - PCI-Express Combo Controller Card (U3S6)