If you right click and run live as administrator this error will not happen.
However, this is quite annoying to do.
I only seemed to be experiencing this with Battery 3, but to fix it I did the following..
Right click on Native Instruments program folder....
Go to Folder Properties
Go to Security tab
Go to Users (<ComputerName\Users)
Click Edit
Approve Admin prompt
Then add MODIFY as a property.
Save then re-open Live
The other hack work around is simply to pick the temp folder when it complains about an installation directory.
But you must do this every time.
If you hit cancel the program will crash.
Simply setting directories non-read only doesn't seem to work.
Only the above steps.
I am using Vista Ultimate 32bit