While you were making your back up, I found the necessary register entry that will help you fix your computer.
The only thing that we are doing is reregistering the Window Server. You mentioned in your intital post that you did something similar, but it did not work. If you did it differently from my instructions you may want to try again. I truly believe that this will work. You checked and you said that the registry setting are ok and that the service is actually running. There is really nothing else I can think of.
My original thought was to take the command from your other computer, but that will not help because the command is ok in your problem computer.
My last piece of advice. I do not like fooling around with the registry, but we have 2 backup, so it should be ok.
Go to run, enter regedit
go to HKEY_local_machine\system\currentcontrolset\services\msiserver
On the right click ImagePath and click modify
you should see or enter msiexec.ele file/v, i.
Contiue and confirm that you want to make the chaneg
click ok and exit registry.
Restart your computer in safe mode. This is done during reboot by holding down f8 and by selecting safe mode. click start
then go to run and enter msiexec /regserver
Hit ok hit start and restart computer in the norml way.
Get back to me so I know what happened