jaadogg8 has it right... But his steps are a bit vague. Here it is step by step. It DOES work.
Part One
1) Insert your CD
2) Go to start --> My computer
3) Double click your Hard drive
4) Click File ---> New ---> Folder
5) You should now have a folder called "New Folder" Rename it whatever you want.
6) Leave this window OPEN...

Part Two
1) Go to start --> My computer (This should open a new window ontop of your other one...)
2) Right click on your CD Drive, and choose Explore
3) You should now see a list of the files on the CD.
4) Click Edit ---> Select All (Or Press Ctl + A) This will highlight all of the files
5) Click Edit ---> Copy (Or Press Ctl + C)
6) Switch windows so your new folder is in view... Click Edit ----> Paste (Or press Ctl + V) Give it some time... You now have your CD Copied to your hard drive...
7) Leave this window open... You now have TWO windows open. The "New Folder" you created, and your CD drive.

Part Three
1) In your new folder window single click the Default~1 file (It is now highlighted)
2) Press delete on your key board, and choose YES (Not to worry... It is still on the CD)
3) Click the "Setup" file... There are two, and you want the one with the blue icon with 2 triangles...
4) Follow the set up directions
5) BOING! You just got an error that says the "Default~1.cab" is missing... (Remember we deleted it!) DO NOT CLICK ANYTHING! LEAVE THE WINDOW OPEN THAT SAYS RETRY!
6) Bring your CD Drive window to the front.
7) Single Click on the Default~1 file.
8) Click Edit ---> Copy (Or CTL + C)
9) Switch to your "New Folder" Window
10) Click Edit ----> Paste (Or Ctl + V) Give it a bit to copy! It is a big file! (Bout 4 mins on a newer computer...)
11) When it is done copying, go back to the "Retry" Window that we left open...
12) CLICK RETRY!

Weeeee! It should now install! Hope that helps! And Great work Jaadogg8!

Thanks for the verbose explanations for those who didn't get it before!

Thank you for making such clear steps. I was hoping it would work for everybody. The most frustrating thing was reading fixes that didn't work for me. Hopefully that didn't happen to too many people.

=)

Yea... Strange the things that pop up and people say IT WORKED! I'm glad this one actually does! I had one upset 5 year old! *YOINKS!*

All credit goes to you Jaadogg8! Great trouble shooting!

I just got my email from LA that told me to update my NVIDIA drivers. I replied with the fix, hopefully it helps the figure out what is causing it.

Thanks for that Caddri and Jaadog, worked like a charm

No problem at all. Hopefully people will do this, because downloading random files is dangerious, and there appears to just be a problem with the timing...

Jackpot! Thanks for the fix.

Lol, it's always the fault of the user because they haven't updated their video drivers. Thats the default reply for every game company.

Seems strange to me that deleting and then putting back the same file works. Definately makes me think LA screwed up, and it has nothing to do with end users, but of course we will never hear them say 'we screwed up'.

The issue seems to be with the access timing for accessing the file. I think it is an anti piracy thing.

If you are installing the game from a CD, it should be slower than from your hard disk right? So say it takes 100 ms from the CD drive to hit the Default~1 file... But from a HD it is 8ms... So the program says, how long did it take? If it is below a certain level, it kills it thinking that someone is a software pirate...

Apparently they failed to realize how fast a new DVD/CD drive really is... So when you remove the file, then put it back it comes in WAY over the threshold and works. *Shrug*

That is my understanding of it anyways, someone will correct me if I am wrong. Either way... Because this actually works... It is 100% LA's fault.

Fantastic! Worked a treat whereas previous "rename" solution failed.

2 very happy kids, thanks.

Thanks very much!!! I was the original poster of the issue last Friday when LA didn't even have support started for the game. This is the one fix that has worked and I even tried the 'fixed' files to no avail. I recommend this fix to everyone!!!

DadofVader!!!

Worked for me, nice job guys, thanks for the work around!

Or instead of doing all that work you could just copy the CD onto your HD and dl the msi fix that removes the bad digital seal. Saves a bunch of time. Virus Free.

bkuehner's fix
Download the signature-less msi file from:
http://www.bvk.nu/LSW2FixUnofficial_bvk.zip

I get the same problems and only thirty minutes trawling forums to find this answer that works, and which (to paraphrase) seems to be to download the pirated installer.

I only hope LA are taking note of this, along with all other software developers. Anti piracy measures don't prevent piracy, they just annoy honest paying customers. What worse, if the solution is to fall back to "use a pirated copy" they will remember this for next time and go straight to limewire/rapidshare/whatever. I'm all for paying the developer (well, I am one) but only if the product works.

and if my kid wasn't so into the first game, I'd take this back for a full refund already...