Ok, finally got a resolution on this. We actually had to call Microsoft. In my 18 years in IT, this is the first time I've ever had to do that.

Turns out it was not a .Net problem, but what led me to believe it was a .Net problem ended up being the problem.

When we first set up this server, we had the server team assign drive letters however they saw fit. I installed SQL Server like any good DBA would. I had decided that this server needed to match our other server as far as drive letters go, and I needed to do a re-install in order to change the collation to match the other servers. So, I changed the drive letter then reinstalled. Everything worked great, and we promoted the server to a production status. Any Community Update packages that we applied worked fat, dumb, and happy. We never had an issue with installing any updates until SP2.

Well, come to find out, SP2 was looking for install packages on the drive letter that no longer existed. I thought that was a bit odd. I would have assumed that the installer would either ask for the location path (like in the good old days) or the needed files would be included in the SP2 download, considering how big the SP2 file was. But, nope, it did not.

I wasn't the only one involved from our company working on this. What they told me was that the Microsoft person ran some program that gave a list of the "missing" packages and the location. I believe they changed the paths in the registry and then we were able to install the service pack.

Crazy and silly, but the SP2 installed just fine after that. I just hope we don't have any issues with the next update on it that we need to install.