In one case, this problem was due to taking the computer out of an NT domain and adding it back in. This causes the service to fail to start because the ASPNET account fails to login.
Resolution: Stop the IIS service (if IIS is installed). Go to Start -> Settings -> Control Panel -> Add/Remove Programs. Uninstall ASP.NET 1.1 then ASP.NET 1.0.
Note: There are no Add/Remove Programs entries for ASP.NET 1.0 Service Packs or ASP.NET 1.1 Service Packs.
Install ASP.NET 1.0 then any ASP.NET 1.0 Service Packs then ASP.NET 1.1 and then any ASP.NET 1.1 Service Packs. Start the IIS service (if IIS is installed).
This event is generated when the .NET framework is installed on a computer that does not have IIS installed (for example a Windows 2000 Professional workstation) or when IIS is installed but the corresponding services set to "disabled" startup mode. The .NET Framework installation is trying to update the ASP component to ASP.NET.