Thanks to all of you (Dhaest, jcoehoorn,and jthow) who have so far given me suggestions.

So far I've tried jcoehoorn's suggestion, because it sounded simplest.  I downloaded and saved the 'Microsoft .NET Framework Version 2.0 Redistributable Package (x86)'.  Then I ran it and selected the repair option.  Well it bombed.  

1.  In case it may help, Ive attached a Word document that contains the text from all the diagnostic text files created by .NET Setup in the C:\WINDOWS\Temp\ folder at the time of the error.  The diagnostic files that I gathered were:
                    \WINDOWS\Temp\dd_netfx20MSI416B.txt
                    \WINDOWS\Temp\dd_netfx20UI416B.txt
                    \WINDOWS\Temp\dw.log
                    \WINDOWS\Temp\SDBED.tmp
                    \WINDOWS\Temp\VSW0
                    \WINDOWS\Temp\VWLEB.tmp
                    \WINDOWS\Temp\VWMEE.tmp
                    \WINDOWS\Temp\WLFEC.tmp
                    \WINDOWS\Temp\VSW0\VSSWMSIFailInfo.txt
                    \WINDOWS\Temp\VSW0\VSSWMSISummary.txt

2.  I've also attached a Word document containing snapshots of the .NET 2.0 Setup error messages I saw.

Should I rerun the 'Microsoft .NET Framework Version 2.0 Redistributable Package (x86)' setup program and choose 'Uninstall' this time?

jthow, Thanks for the link to the 'Microsoft Update Catalog' site.  The first thing I saw when the page opened was a message telling me that I needed to install a browser add-on.  So I did that and immediately ran into the following error message from the 'Microsoft Update Catalog' site:

===================================
     The website has encountered a problem  
          [Error number: 8DDD0020]
               The website has encountered a problem and cannot display the page you are
                trying to view. The options provided below might help you  solve the problem.
               
      For self-help options:                              
          Frequently Asked Questions
          Help and Support

===================================


When I clicked either of the two self-help options, the browser opened another page momentarily, and then reverted to the same error message page.

I did, however, get snapshot pf the FAQ page before it reverted to the error message page. The first question and answer there was:

"What is Microsoft Update Catalog?  Its a service from Microsoft that provides a listing of updates that can be distributed over a corporate network."

Well, I'm working on my home computer and am not connected in any way inside to a corporate network.  So the use of Microsoft Update Catalog cannot help me.   Still, thanks for your input.

Success at last!  I was finally able to uninstall and reinstall "Microsoft .NET Framework 2.0."

Thanks to Dhaest, jcoehoorn, and jthow, for their help.   Im giving the full 200 points to jthow because  jthow stayed with me on this problem and guided me to a solution.

The key steps to the solution were to uninstall TurboTax and then .Net 2.0; however, I had to use the Windows Installer CleanUp utility (msicuu2.exe) to remove .Net 2.0 because the Add or Remove Programs Remove option would not work.  Finally, the reinstallation of TurboTax also installed .Net 2.0 by default.  Subsequently, I was able to successfully install the Microsoft .NET Framework 2.0 Service Pack 1 (KB110806) critical update, now that the .Net 2.0 registry configuration and files were correct.

For the record, here are the details of how I resolved this problem:

TurboTax suggested these steps:

     1.  From the Start menu, select Control Panel.
     2.  Double-click Add or Remove Programs.
     3.  Uninstall TurboTax.
     4.  Uninstall .NET 2.0.  
            Note: If a higher version of .NET is installed (e.g., .NET 3.5),
            uninstall the higher version first, and then uninstall version 2.0.
     5.  Reinstall TurboTax. (This will reinstall .NET 2.0.)
     6.  Update TurboTax.

Well, Step 4 bombed.

So I took the link jthow gave me [ http://support.microsoft.com/kb/295823 ] and followed the instructions there on how to download, install, and use Windows Installer CleanUp utility (msicuu2.exe) to remove the .NET Framework 2.0.

Next, I successfully reinstalled TurboTax (Step 5) which installs .NET Framework 2.0 by default.  Neat!

Unfortunately, when I launched TurboTax it bombed and displayed an error message similar to the one before, namely, Our apologies for any inconvenience this issue has caused. We have outlined a solution to this problem here:  http://turbotax.intuit.com/support/kb/installing/errors/5068.html.  We know your time is valuable, and appreciate your help in reporting this problem.

The link opened the TurboTax troubleshooting webpage with instructions different than those above:

1.      From the Start menu, select Control Panel.
2.      Double-click Add or Remove Programs.
3.      Uninstall .NET 2.0. If a higher version of .NET is installed (e.g., .NET 3.5), uninstall the higher version first, and then uninstall version 2.0.  

Note: If you cannot uninstall .NET, follow the troubleshooting steps in Microsoft article 908077.

4.      If the .NET v2.050727 folder is present on your computer, rename the folder:
a.      Right-click the Start button and then choose Explore.  
b.      Browse to C:\WINDOWS\Microsoft.NET\Framework.
c.      Right-click the v2.0.50727 folder, and then select Rename.
d.      Type v2.0.50727-OLD, and then press Enter.

5.      Download and Install .NET 2.0 Service Pack 1. If you removed a higher version of .NET (e.g., .NET 3.5), install the higher version instead.
6.      Launch and then update TurboTax.


At Step 3, when I clicked the Remove button for the .NET Framework 2.0 entry in the Add or Remove Program list, surprisingly, the setup program automatically launched into install--rather than uninstall--mode.  I saw the installation progress window indicate that the setup program was writing values to the registry and copying files to the folder C:\WINDOWS\Microsoft.NET\Framework\v2.0.50727.  This gave me hope that this time the .NET Framework 2.0 configuration would be restored.  After the setup program indicated a successful installation, I restarted the computer.  When the Windows XP login screen returned, the keyboard was frozen.  So I cold booted the computer.  This time the Windows XP login screen let me log in.  

Lastly, I went to the Windows Update web page and through the express update option installed the high priority Microsoft .NET Framework 2.0 Service Pack 1 (KB110806) update (which I hadnt been able to install for a week due to the corrupt .NET 2.0 configuration on my system.)  

So, now TurboTax launches without error, and alls well.  

Note to the admin:  would you please replace all of the box symbols in my text with the single or double quotation symbol.  I wanted to use the double quotation symbol (found on the uppercase key located  just to the left of the <Enter> key), but that translated into a box symbol on the Experts-Exchange web page.  I then tried the single quotation symbol (found on the lowercase key also located just to the left of the <Enter> key), but that, too, the E-E website converted into a box symbol.  Maybe I should have used the grave accent mark ( ` ) thats located on the lowercase key of the same key where the tilde ( ~ ) symbol is located in the uppercase position.