Katy,
I apologize for you having difficulty with the installer. There were known issues with the installer for certain cases of localized versions of either Windows or Office. We published a new build that should have fixed these problems.
Could you please try to download the latest version from the web and retry the installer? This should fix the SP2 issue.
For the Team Explorer problem... What version of Team Explorer are you running? We require: Microsoft Visual Studio 2005 Team Explorer
Version 8.0.50727.147
If you have anything prior to this, you will need to upgrade your Team Explorer.
Cheers,
~Joe