I was able to get this to install by making a small change to the registry. I'd looked up the .net version in the registry
HKLM\SOFTWARE\Microsoft\NET Framework Setup\NDP\v3.5\
according to http://stackoverflow.com/questions/198931/how-do-i-tell-if-net-3-5-sp1-is-installed
What I noticed is that while Win 7 comes with SP1, the registry entry had the "SP" key set to 0. I changed it to 1 and the SQL 2008 installer worked correctly after that.