I encountered a slightly different problem. It is only related to attempting to instal AOE3 on a Windows 7 laptop (64 bit).
I would launch the setup.exe and see a few dialog windows showing progress bars mentioning something about preparing Install Shield. After this an Install Shield icon would remain on the start bar and in the Application tab of the task manager. However, nothing would happen and I ended up having to force quit install shield.
I played with processes for a while and found out that if I used the task manager to end the process called dllhost,exe (description reads DLL Surrogate), the Install Shield would pop back to life and begin to install as normal,
Finally, after following the steps to install through discs 1 through 3 it asked me to insert disc 1 again. The exact same thing happened again (Install shield still running, but not responsive even though the task manager reported no problems). Turns out dllhost.exe was running again. Ending that process via the task manager once again brought the install shield back to life and I was able to finish the installation.
Another peculiar thing I noticed is that while that dllhost.exe process was running (as a by product of install shield for this game), all 4 of my processors were getting hammered.