My guess is because it can't write some file to the LOGON folder or similar issue, but here are some links to possible solutions or causes.

Error 1603: Fatal Error During Installation
http://consumer.installshield.com/kb.asp?id=Q111019

Technical Article #1004
http://www.netpro.com/products/changeauditor/ta/caadta1004.cfm


List of error codes and error messages for Windows Installer processes
http://support.microsoft.com/?kbid=229683

When you attempt to install a Windows Installer package on Windows 2000 or Windows XP, you receive 'Error 1603: A fatal error occurred during installation'?
http://www.jsiinc.com/SUBP/tip7700/rh7732.htm