Below is my SQLsetup.log I am using Windows 7 Professional 32 bit. I had the 4.0 Client profile installed as well as the default 3.5 sp1 that came with windows.
11/26/2010 11:04:06.740 ======================================================================
11/26/2010 11:04:06.838 Setup launched
11/26/2010 11:04:06.863 Attempting to determine media source
11/26/2010 11:04:06.888 Media source value not specified on command line argument.
11/26/2010 11:04:06.913 Setup is launched from media directly so default the value to the current folder.
11/26/2010 11:04:06.938 Media source: c:\d84440adac34fdaa68\
11/26/2010 11:04:06.963 Attempt to determine media layout based on file 'c:\d84440adac34fdaa68\mediainfo.xml'.
11/26/2010 11:04:07.290 Media layout is detected as: Core
11/26/2010 11:04:07.353 Media LCID is detected as: 1033
11/26/2010 11:04:07.378 Not a slip stream media, so continuing to run setup.exe from media.
11/26/2010 11:04:07.403 /? or /HELP or /ACTION=HELP specified: false
11/26/2010 11:04:07.437 Help display: false
11/26/2010 11:04:07.461 Checking to see if we need to install .Net version 4.0
11/26/2010 11:04:07.485 Determining the cluster status of the local machine.
11/26/2010 11:04:07.512 The local machine is not configured as a cluster node.
11/26/2010 11:04:07.535 Attempting to find media for .Net version 4.0
11/26/2010 11:04:07.560 .Net version 4.0 needs to be installed from media: c:\d84440adac34fdaa68\
11/26/2010 11:04:07.627 Error: Unable to find media for .Net version 4.0
11/26/2010 11:04:07.744 Setup closed with exit code: 0x84C40007
11/26/2010 11:04:07.835 ======================================================================