Sql server 2008 R2 installation fails with Error: 17204 Sql server 2008 R2 installation fails with the below error message in the log message, 

This is a part of the sql server log


  Starting up database 'msdb'. Error: 17204, Severity: 16, State: 1.
  FCB::Open failed: Could not open file
  e:\sql10_main_t.obj.x86fre\sql\mkmastr\databases\objfre\i386\model.mdf
  for file number 1.  OS error: 21(failed to retrieve text for this
  error. Reason: 1815).


Has anyone come across such an issue. Please help on how to resolve this issue.

EDIT: the sql server error log can be found at http://pastebin.com/TED7vJWX

EDIT:
This is the latest log,
2012-09-20 14:34:29.74 spid6s      Starting up database 'mssqlsystemresource'.

2012-09-20 14:34:29.78 spid6s      The resource database build version is 10.50.1600. This is an informational message only. No user action is required.

2012-09-20 14:34:30.51 spid6s      Error: 15209, Severity: 16, State: 1.

2012-09-20 14:34:30.51 spid6s      An error occurred during encryption.

Same as before.
This is a known issue which has several causes:  


The first thing to check is your permissions on local machine:  
Are You a local Administrator?  
Is there a group policy that might prevent you from installing \ debugging?  


If these do not resolve the problem in your case, and you have verified the required permissions, please provide more info:  


What parameters do you use during installation (beside the default ones)?  
Which Edition of SQL Server are You installing?  
Do You use Default instance name?  
On which O/S are You installing?  


EDIT:
Next steps: 
1. open the folder ":\Program Files\Microsoft SQL Server\100\Setup Bootstrap\Log
2. Find a file named Detail.txt
3. This file has a complete log, You need to find the FIRST error that occured during installation.
4. Paste it here, only the part with the error.  

EDIT:
Added Solution to comments, waiting to hear if the problem is solved