I have blogged in the past on the challenges of installing CRM 3.0 rollup updates on a single VPC where both the Outlook Client and Server are installed on the same machine.  For Rollup Updates #2 I developed a hack and procedure to accomplish this and for Microsoft Dynamics CRM Rollup Update #3, this procedure needs to be modified slightly.  The original options are still valid to get past the "An unexpected internal error has occurred" message:

Option #1
Is to uninstall the client, install the server update and then re-install the client.  This of course is a pain.

Option #2 is to find this registry key:
HKEY_CURRENT_USER\Software\Microsoft\Installer\Products\223F2CCFC88E
FB14D92F37114E967322

And temporarily rename it to:
HKEY_CURRENT_USER\Software\Microsoft\Installer\Products\223F2CCFC88E
FB14D92F37114E967322.bak

Unfortunately this trick doesn't fully work, as if you try to install the server update #3 now, you will get the following error telling you that you need to install Update #2 (even though you probably already have).

This is where, part two of the "hack" comes in.  The reason for the new procedure is because of some very odd behavior in the CRM Outlook Client Rollup Update #2.  This client update for some reason actually modifies the Server's registry hive and this modification confuses the Server Update #3 installer so that you get this error.  The issue is that the Update #2 actually installs the following key as a STRING in the Server's hive (odd):

HKLM\Software\Microsoft\MSCRM\KB927751IsInstalled

And sets it to the string "1".  The Server version of Update #3 looks for this key in the Server Hive (rightfully so) but expects this to be a DWORD and not a STRING.  So the fix here is to delete this key and re-create it as a DWORD with the same name:

HKLM\Software\Microsoft\MSCRM\KB927751IsInstalled

This time, set it to the number 1 and proceed with your installation of the server update.  Once the server update is installed, you can rename the key client key:

HKEY_CURRENT_USER\Software\Microsoft\Installer\Products\223F2CCFC88E
FB14D92F37114E967322.bak

Back to normal (remove the ".bak") and proceed with the Client Update #3 installation as normal.

Enjoy!

This posting is provided "AS IS" with no warranties, and confers no rights.