Windows 7 Ultimate SP1 installation fails with error code c0000034

//
// MessageId: STATUS_OBJECT_NAME_NOT_FOUND
//
// MessageText:
//
// Object Name not found.
//
#define STATUS_OBJECT_NAME_NOT_FOUND     ((NTSTATUS)0xC0000034 L)

boot from the Windows 7 DVD or Windows Recovery Environment (F8)[1] and run the command prompt and run this:

DISM /image:C:\ /cleanup-image /revertpendingactions

(replace C: with the drive where you installed Windows 7)

This reverts all pending operations. Now you should go back to Windows 7 RTM.

Have you used Driver Sweeper to remove the ATI Inbox drivers? Yes, check this:

Windows 7 Service Pack 1 fails to install with 0x800f0a13 or 0x800f0826

If not, Please run the Windows Explorer and go to the folder "C:\Windows\Logs\CBS\" and copy all files to your document folder, also copy the setupapi logs from the folder C:\Windows\Inf and the file "C:\Windows\winsxs\poqexec.log" to your document folder (otherwise you can't upload it), zip all files into 1 ZIP and upload the zip to your SkyDrive [2] and post a link here.

[1] http://windows.microsoft.com/en-US/windows7/What-are-the-system-recovery-options-in-Windows-7
[2] http://social.technet.microsoft.com/Forums/en-US/w7itproui/thread/4fc10639-02db-4665-993a-08d865088d65