@Thiev
Yeah I saw that post also, so I knew the problem wasn't in my hardware and windows.

@cogadh
Antivirus is Microsoft Security Essentials, and the basic W7 firewall.
So virtual is out then.

PS: As for additional info:
I have the original CD-ROM I got when I bought a GPU I think.. (lol :P), and my specs are:
Intel Core 2 Duo @2.13 GHz
nVidia GeForce GT 440 1 GB
4 GB DDR2 RAM
Hardware is definitely not the issue here.

PPS: Heck I even tried torrenting the game, but every torrent get's stuck at 0%...
PPPS: I do not torrent games, I buy originals, I did it on this one, as I already have it and just wanted to see if my cd isn't working.

Just to eliminate as a possible cause, try disabling MSE before you launch the install. MSE is not really known for interfering with installs like some other products will, but it is still possible.

I wouldn't necessarily dismiss a VM as a potential solution, but it may involve just as much work as fixing this on Win 7 would, and when all is said and done, it still might not run.

Nope.. Same as before with MSE realtime protection off.

Process:
Setup.exe *32 | My Username | 00 | 1,936 K | 32-bit Setup Launcher

Other processes that have a suffix "*32" run normal.

What about installing the game on a VM and then copying the files?