I would try this: go to Add/Remove Programs, and uninstall .NET 1.1 (not 3.x or others), reboot PC, and then go to WindowsUpdate and download & install all available updates.
Alternatively, you could use
.NET Framework Cleanup Tool to remove all existing framework versions, and then install
.NET 3.5 SP1 full package AND, after that,
this update for it.
Normally when you install .NET 3.x, you still need to install 1.1 for applications that use .NET 1.1 because the different versions don't just overwrite and update previous releases as is the case with most other software products. However, the 3.5 SP1 (full release) should include the necessary 1.1 components, so it should be all you need. Just don't forget to patch it afterwards with KB959209 as mentioned.
Good luck.