After a while I need to apply a recent AX kernel hotfix - but Windows Installer fails with error 1603 while applying the AOS kernel patch. In the verbose log there's also another error during the CostFinalize action:
Error 1325. 'globalassemblycache' is not a valid short file name.This error is logged after adding lots of properties that map to subfolders of E:\globalassemblycache\. According to the KB834484 error 1603 means Windows Installer can't access the product folder or something. That is a clue because one of the properties, DirGAC.Blah-Blah-Blah, is logged to be set to D:\globalassemblycache, and in my case D:\ is a virtual CD drive with no image mounted.
I had changed the CD drive letter and the AX kernel hotfix installed successfully. Then I reverted the CD drive letter back - just in case.
The point is: in case of Windows Installer error 1603 look carefully for suspicious paths in the verbose log.