Based on the information that you are unable to install VWD 2008 SP1 using webpi as well, I think you might have a previous version of Visual Studio or Visual Web Developer (RTM?) on the machine.
Can you uninstall a previous VS or VWD version and then try again?
Quick question - When you tried to install VWD SP1 using webpi, did you get any error message from WebPI?
HTH
Nitasha