I have not being able to install and use my lifecam vx-3000 suffering for 1 month because of the same error, "either you do not have enough space on disk or error 1603" if I remember well. I could not find any helpuful web answer to solve my problem.
Recently I tried to install Skype update v. 3.8 and I got the message that the installation could not continue for possible causes, one of wihch was "windows installer not working or missing".
So I downloaded from Microsoft Windows Installer 4.5 for my version of windows XP 64bit "WindowsServer2003-KB942288-v4-x64" and I restarted the system.
Then I installed Skype and it worked.
THEN I DOWNLOADED THE DRIVER FOR my LIFECAM VX-3000 v 1.4, the driver installed properly and the webcam finally worked.
You need to download the Windows Installer version that is specific for your version of Windows. It should work also for the different versions of lifecam, VX-1000, 3000, 6000.
I think that the CD containing the driver "LifeCam v 1.3" coming with the webcam was defective and I believe it corrupted Windows Installer in my system.
Hope it helps in fixing your problem
GiRo.