Believe it or not I have exactly the same problem with just a little difference! The same error occcures when installation reaches 56% (CD 3). I thinks it says something like "...while writing to the file D:\Program Files\Microsoft Games\Flight Simulator 9\scenery\ (something I can't remember).
I don't know what they mean by saying the disk is full, but my hard disk certanly isn't because the only thing I had installed on my computer was FS2004.
I had ordered an FS2004 add-on from PCaviator which arrived over a month later. When I wanted to install it two days ago, an error message said something like "you don't have the appropriate FS2004" and I couldn't start the simulator at all.
I thought by de-installing the add-on the FS will work but it did not! So I tried to re-install the whole FS.
During the re-installation I got the error message you have as well, and since then I can't install my FS!
For how long have you had your FS? If you've had it for a year or more like I did, then prepare yourself for sleepless nights, because it's the most addictive thing I've ever tried.
If anybody has a solution for our problem please HELP!