Thanks again for all who commented. I wanted to follow up with the solution that I came across, as after doing all of the recommended things on this thread I was still getting an error 1001 and rollback of the installation.
Crystal Reports was the problem.
Basically, if you are developing in Visual Studio 2008 with Crystal Report 10.5 components, then you must run a bootstrapper exe prior to running the install of the custom ArcGIS components. This bootstrapper is found here:
C:\Program Files\Microsoft SDKs\Windows\v6.0A\Bootstrapper\Packages\CrystalReports10_5
After running this on the target computer, my custom tools installed just fine.