Windows Installer not working on a fresh system

Most probably the issue with registry entry ..
 try below steps on run

1. msiexec /unreg  or (msiexec /unregister)

2. msiexec /regserve  or (msiexec /regserver)

also look below path :
HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Services\MSIServer   then look on right panel for ImagePath , it should be like "C:\WINDOWS\system32\msiexec.exe /V "

If not worked use any registry fixer ..

Done those steps, didn't worked for me.
The value in registry was correct (I even checked if there are no spaces on the end of line).

Any corresponding entries in event viewer ? And also i hop you have restarted the server . if not ,do a restart and try

Server was restarted of course (not once). In event log there is nothing more that this "Event ID 11719: Error 1719: The Windows Installer Service Could Not Be Accessed" Description vary a bit depending which msi I tried to run.

here is end of logfile when running msiexec in verbose (you can see the line about not set proxy):

MSI (c) (14:30) [10:21:38:313]: Doing action: CaGetCommonDocsPath
Action 10:21:38: CaGetCommonDocsPath.
Action start 10:21:38: CaGetCommonDocsPath.
MSI (c) (14:30) [10:21:38:313]: Note: 1: 2235 2:  3: ExtendedType 4: SELECT `Action`,`Type`,`Source`,`Target`, NULL, `ExtendedType` FROM `CustomAction` WHERE `Action` = 'CaGetCommonDocsPath'
MSI (c) (14:30) [10:21:38:313]: Creating MSIHANDLE (1) of type 790542 for thread 304
MSI (c) (14:B4) [10:21:38:313]: Invoking remote custom action. DLL: C:\DOCUME~1\_ADRIA~1\LOCALS~1\Temp\MSIF.tmp, Entrypoint: CaGetCommonDocsPath
MSI (c) (14:1C) [10:21:38:313]: Cloaking enabled.
MSI (c) (14:1C) [10:21:38:313]: Attempting to enable all disabled privileges before calling Install on Server
MSI (c) (14:1C) [10:21:38:313]: Connected to service for CA interface.
MSI (c) (14:B4) [10:21:38:329]: Could not set proxy blanket on CA proxy interface. Error: 0x80070534
MSI (c) (14:B4) [10:21:38:329]: Closing MSIHANDLE (1) of type 790542 for thread 304
MSI (c) (14:30) [10:21:38:329]: Note: 1: 1719
Info 2898. For Tahoma8 textstyle, the system created a 'Tahoma' font, in 1 character set, of 13 pixels height.
DEBUG: Error 2835:  The control ErrorIcon was not found on dialog SetupErrorDialog
Internal Error 2835. ErrorIcon, SetupErrorDialog
Error 1719. The Windows Installer Service could not be accessed. This can occur if the Windows Installer is not correctly installed. Contact your support personnel for assistance.
MSI (c) (14:30) [10:21:41:282]: Product: Microsoft Virtual Server 2005 R2 SP1 -- Error 1719. The Windows Installer Service could not be accessed. This can occur if the Windows Installer is not correctly installed. Contact your support personnel for assistance.

Action ended 10:21:41: CaGetCommonDocsPath. Return value 3.
MSI (c) (14:30) [10:21:41:282]: Doing action: FatalErrorForm
Action 10:21:41: FatalErrorForm.

Until this procedure CaGetCommonDocsPath is being run, everything looks normally

and similar log when trying to install different application:

MSI (c) (14:60) [10:39:48:436]: Doing action: IsPendingRebootKey
Action 10:39:48: IsPendingRebootKey.
Action start 10:39:48: IsPendingRebootKey.
MSI (c) (14:60) [10:39:48:436]: Note: 1: 2235 2:  3: ExtendedType 4: SELECT `Action`,`Type`,`Source`,`Target`, NULL, `ExtendedType` FROM `CustomAction` WHERE `Action` = 'IsPendingRebootKey'
MSI (c) (14:60) [10:39:48:436]: Creating MSIHANDLE (1) of type 790542 for thread 3424
MSI (c) (14:D4) [10:39:48:436]: Invoking remote custom action. DLL: C:\DOCUME~1\_ADRIA~1\LOCALS~1\Temp\MSI11.tmp, Entrypoint: IsPendingReboot
MSI (c) (14:34) [10:39:48:436]: Cloaking enabled.
MSI (c) (14:34) [10:39:48:436]: Attempting to enable all disabled privileges before calling Install on Server
MSI (c) (14:34) [10:39:48:436]: Connected to service for CA interface.
MSI (c) (14:D4) [10:39:48:467]: Could not set proxy blanket on CA proxy interface. Error: 0x80070534
MSI (c) (14:D4) [10:39:48:467]: Closing MSIHANDLE (1) of type 790542 for thread 3424
MSI (c) (14:60) [10:39:48:467]: Note: 1: 1719
Info 2898.For Tahoma8 textstyle, the system created a 'Tahoma' font, in 0 character set, of 13 pixels height.
Error 1719. The Windows Installer Service could not be accessed. This can occur if you are running Windows in safe mode, or if the Windows Installer is not correctly installed. Contact your support personnel for assistance.
MSI (c) (14:60) [10:40:07:030]: Product: MSXML 6.0 Parser (KB927977) -- Error 1719. The Windows Installer Service could not be accessed. This can occur if you are running Windows in safe mode, or if the Windows Installer is not correctly installed. Contact your support personnel for assistance.

Action ended 10:40:07: IsPendingRebootKey. Return value 3.
MSI (c) (14:60) [10:40:07:030]: Doing action: SetupCompleteErrorDlg
Action 10:40:07: SetupCompleteErrorDlg.
Action start 10:40:07: SetupCompleteErrorDlg.


Here there was different procedur but again there was something with proxy:
Could not set proxy blanket on CA proxy interface. Error: 0x80070534

Error "Could not set proxy blanket on CA proxy interface" is related to WMI, and 0x80070534 means ‘No mapping between account names and security IDs was done (0x80070534)". See if that is something you might address.

Still, both installations are using custom action, and it looks like it's custom action that fails with this error. To see if there's indeed a problem with Installer, please run this "pure" installation, which will install an empty file on your desktop. See if Installer still fails. Then you can uninstall it.

I tried that file and it worked. I installed it and unistalled without any problems.

As this is DC there are no local accounts. I tried also install anything with other domain admin account but with no luck.

If this installation worked, it means that there's no problem with Windows Installer, and you should concentrate on the error "No mapping between account names and security IDs was done".  I would start right on this site, the search for this phrase does return quite a number of results, as well as search on support.microsoft.com . Although all these articles usually describe some specific scenario that results in this error, if you read a couple of them you will detect the pattern of what to look for.

ok, thank you, will start right now.
I just also opened a call in MS

Solution was provided by MS specialist and I'm only sharing it with other people