Updated: April 21, 2017
Several days ago, I was just about to start a call with a non-existent friend when Skype decided to self-update itself on a Windows 7 box, and later on Windows 8, too. All right, no biggie. This happens now and then, and usually the ordeal is over within a minute or two. Only this time the update failed with error code 1603.
As you can imagine, I was annoyed, as I was unable to complete the call - imagine this happening to you just before an important meeting or an interview. It also meant wasting time digging into a pointless problem that should never have happened in the first place. Ah well, my time cannot be rewound, but I might save you some of yours.
Problem in more detail
That's a part of the problem. There isn't any more detail. Skype is self-updating. Check. You get a prompt: Installing Skype failed; code 1603. That's it. No errors show in the Event Log. Skype is no longer listed in your Add/Remove program. Just gone.
The only thing that you may see is a Warning in the Event Viewer, with a rather ambiguous text - it does not even list the package you tried, and you may have several past instances in the log history.
An error occurred while refreshing environment variables updated during the installation of ''. Some users logged on to the machine may not see these changes until they log off and then log back on.
At this point, you will hopefully type the above string in a search box in your browser and follow a dozen links. All of them offer 3-4 things, the first being using Microsoft's diagnostic tool for install and uninstall activities, the second being some registry hack, the third asking you to remove an old security update, the rest getting even techier. That's quite radical. I think the important thing is to actually understand WHAT is happening before doing anything else.
Permissions, firewall, whatever, none of those should be relevant if you haven't done any changes in your system and/or other software installs normally. If you can setup a different program, you can rule out system shenanigans. Moreover, remember, your Skype self-updates most likely worked before, and it's only that you suddenly are experiencing problems! This would mean Microsoft sucking, not you.
Error 1603 is a generic (and tricky) error code related to MSI packages, which is the Microsoft Installer format - think of it as packaged executables with some extras. This may indicate a problem with how the Skype MSI file is handled.
Therefore, the SIMPLEST option is to manually download the Skype installer and try installing the program on your own before moving into any other drastic and big changes on your system. You can grab the latest Skype MSI from the official site (direct download). Please be careful with direct downloads and check the digital signature of the file to make sure it's signed properly. Do note this is a different file - SkypeSetup.msi - from the standard SkypeSetup.exe file you'd normally obtain by going to the Skype site and selecting a download. The EXE file is a small stub, usually 2-3 MB in size, while the MSI package weighs at about 40-50 MB. Anyhow, verify the digital signature then proceed.
Next run the installer manually (double click on SkypeSetup.msi):
Skype should now re-install itself correctly, and you should be able to continue using the program normally. If this does not work, you can always try the other steps, but I believe they will be less useful. For example, the troubleshooter will ask you to select the program you're trying to install. But it won't be there if it's not there, right. Catch-22.
Here we go. Sometimes, very tricky problems can have trivial solutions. The issue is, when you don't have sufficient information, you can easily get lost. Trial & error feels like a valuable activity, but every change you make without fully understanding the problem only complicates things further. Which is why you should avoid applying blind tweaks until you know both the cause and the effect.
In this particular case, the issue is probably in how Microsoft created the new archive, so something is wonky in the EXE setup file, which cannot download or open the MSI file, hence the error. Something really silly. But you can fix it manually, and there's no need for extensive witchcraft dabbling into the system internals. Simple things first. Avoid random changes. The art of problem solving. Well, hopefully, this has saved you some precious time. Enjoy your Skyping.