If you're running this program from a CD, the CD-Rom could be faulty. Have you tried copying the contents of the CD to a separate folder on your desktop, then double clicking the "setup.exe" file inside the folder to install the program?

The link below might fix your issue:

'The install Shield engine 'ikernel.exe' could not be launched - Error loading type library / dll'?

Because Service Pack 2 on Windows XP installs a new Windows Installer 3.0, and it also updates many different files, you might consider upgrading to SP2. Although there are no guarantees, it should fix the issue.

Frequently, it's a problem with the Install Shield of a particular program and is no fault of your's or the machines.

HOpe this helps.