What happened to me recently was while installing Visual Studio 2008 Team Edition in a demo virtual machine I got an error saying “Error 1330:  A file that is required cannot be installed because the cabinet file DRIVELETTER:SOMEPATHcabNUMBER.cab has an invalid digital signature.  This may indicate that the cabinet file is corrupt.”.

I was trying to install Visual Studio 2008 in an existing Virtual Machine on Virtual Server 2005 R2.
At first I thought it was happening because I mounted the .iso image over the network, however when this happened a second time with the ISO image on my harddisk I figured that that couldn’t be the issue.
For the installation the third time I chose ‘custom’ instead of the ‘default’ option.

I went through the list of options that were there and unchecked the option C++ and SQL Express and the installation was successful after that. You can always install SQL Express afterwards if you want to, even download it from Microsoft’s website. I really didn’t need SQL Express or C++ – so in my case I was actually happy that I was forced to look over the options.

From the various posts I have been reading it has something to do with the way an .iso is mounted and the software you use. Different people have had success with using other software to mount the iso image.
Since I was just using the built in Virtual CD/DVD drive it could be that there is some kind of an issue with that.

If you found some other solution for the problem or the solution mentioned above worked, leave a comment and tell others about it!