I don't know what that merge module does, but the idea that the framework
would be distributed as a merge module was abandoned when 1.0 shipped, but
vestiges remain. You should be launching the framework redist before
launching the MSI install, then you wouldn't be getting most of these issues
(which seem to be caused by having the framework installed during your
install).
If you are installing Services using Installer classes, that's not required.
.NET Services install fine using the Service features in the InstallShiled
IDE which end up populating the MSI file ServiceInstall and ServiceControl
tables.
Most of what you're asking is Windows Installer, not framework setup.
Properties like AFTERREBOOT, and REBOOT would help, but if you install the
framework separately you won't need them. Postponing a reboot doesn't
always help. If the framework isn't completely installed (because of a
pending reboot), then when your MSI installs there may be failures - will
custom actions that use the framework work ok? Will assemblies install
properly?

Signature
Phil Wilson
[Microsoft MVP-Windows Installer]
Definitive Guide to Windows Installer
http://apress.com/book/bookDisplay.html?bID=280
> Hi,
>
[quoted text clipped - 14 lines]
> to
> the end of the installation?