I know this may sound simplistic, but, have you logged off the machine and logged back on? The only times I've had the problem you are describing is when some .dll or other image sticks in memory and remains registered with NT and an application (.exe) that I'm starting calls it. Usually logging off and then back on clears it up -- other times it takes a warm boot.
I'd say that restoring from a backup (assuming you have one) would be the last resort. You might try shutting down any 3rd-party services you may be running, avoid loading any applications on start up (try to achieve a minimal configuration) and see if that will let you run setup.
Any chance that the setup.exe you're running is corrupt? Or, maybe, it doesn't have a GUI(like unzipping files to an installation directory). If you have a Start button, you're at least running explorer.exe. If you can get a command prompt, then you are able to run either cmd.exe or command.com.
It really does sound like some mis-matched ActiveX controls -- something a service pack re-application could remedy. Even if you can't run the service pack, you can manually extract the files and apply them yourself -- concentrate on the common control .dlls.
Good luck