VMware Tools installation fails

When trying to install the VMware Tools software in a virtual machine, using the typical option, i received the following error messages:

Screen Shot 2013-04-04 at 15.24.19Screen Shot 2013-04-04 at 15.24.34Screen Shot 2013-04-04 at 15.24.48

The virtual machine was running Windows Server 2008 R2 Service Pack 1 so i have successfully installed VMware Tools many times using the same virtual machine operating system.
The virtual machine was running the Telnet service (do not ask me why) and used the following configuration:

Screen Shot 2013-04-04 at 15.47.21Screen Shot 2013-04-04 at 15.47.37

The problem was the Telnet service “Log on as” configuration. If using “Local System account” and not mark the checkbox “Allow service to interact with desktop” you can/will get problem when trying to install Plug and Play devices.

To solve the problem, change the “Log on as” configuration back to its default value (Local Service) and restart the virtual machine since only restarting the Telnet service don’t solve the problem (at least not for me).

Screen Shot 2013-04-04 at 16.02.05

Additional information can be found at the Microsoft support web site