Can't install .Net Framework or Update Windows

I just installed Windows 7 Embedded (Windows Thin) on a USB Stick and booted it.

I'm trying to installed .Net Framework 4 and it keeps telling me to Update Windows first.

So I tried updating windows but I keep getting the 80070005 error.
I googled the error and I came across this

Basically I should download subinacl.msi and install it in c:\windows\system32
but when I do I get this: error 2755 1632

I have no idea what to do next. I can't install .Net Framework, can'y update windows, I can't do anything.

I even checked if the TEMP folder is encrypted, it's not.
Any advise?