The error; "Another version of Microsoft Visual Studio 2008 has been detected on this system that must be updated to SP1." can occur because;

If the computer that you are trying to install the Microsoft Visual Studio 2008 Shell SP1 on had a prior version of either the isolated shell or Visual Studio 2008, then it must be removed first. It is possible that Add/Remove Programs may not properly list either of these installs. In this case, you must modify the registry to be able to run the installation properly.

Open "Regedit" and locate the following key; HKLM\SOFTWARE\Microsoft\DevDiv\VS\Servicing\9.0. Locate the key labelled "SP" and update its value from "0" to "1".