I've had the same problem that everyone has or about with the SP1 to Virtual PC 2004, tried every version of the ISScript.msi, and all the engines, that did not work, but i managed to trick it into working, by taking the setup.exe from the non sp1 update or full sp1 cd of VPC 2004, had to rename the .msi so that setup.exe from old version would find it, and it removed old files, copied new ones, and everything was updated properly, if u already have saved sessions, shut the virtual pc down, cause u will lose them, u will have to boot them from scratch
PS: Copy content of new cd to a folder, copy setup.exe from non sp1 version, and then run the setup... next.. next.. next.. thats it