Just a thought: When you click on the iTunes install package on your desktop, did you right click and select run as an administrator? I have heard that that will solve a lot of issues with access problems.
Before I did my upgrade from Vista Home Premium to Windows Home Premium, I moved my entire iTunes music folder (videos, iphone apps, music, etc) to my D partition (same drive, different partition). I updated itunes on where to look for the music folder. I read someplace that windows 7 likes to 'inventory' all of your media when it does the install, making some installs with lots of media files long, long installs. I read of one upgrade that was 20 hours. Moving the media files to another partition should shorten the install time. Mine was 3 hours start to finish.
When I began my upgrade, the upgrade advisor had be uninstall iTunes and 3 Acer oem programs that were 'incompatible'. After that, everything went well. It is likely that if your install is hanging or you are having issues afterwards, there is some bloatware on your computer that is causing it. That's also why clean installs usually work. Less junk in the partition.
When I reinstalled itunes, everything was exactly like it was before--playlists, music, etc.
I DID do a disk clone with Acronis True Image Home 2010 to an external drive before the upgrade and a complete defrag (1 hour) prior to the upgrade just in case.