For anyone having this problem, the solution is simple: Flight Simulator requires msxml 4.0 in order to install properly and fuction. If you go to www.microsoft.com/downloads and search on MSXML 4.0 you will find the latest install for this component (the pages keep changing, so rather than providing a link that will soon be broken, I'll let you just search for it). Click the download button for msxml.msi, follow the simple instructions to install it on your machine, and then try your Flight Simulator install again. I tried this last night and everything worked as expected. Flight Simulator installed correctly on my machine, and it is now working great.
I hope this helps someone out there...