Tried to install some program, it gives above message requiring 1.1.4322.
BUT as the title says, all the frameworks are already installed on my WinXP SP2, if i inspect C:\WINDOWS\Microsoft.NET\Framework\
The machine has VS2008 which essentially required full installation of Framework 3.5 SP1.
Any ideas? (i know, just re-install framework 1.1 again, but why should i - I can see all Frameworks are installed, and things are supposed to be backward compatible.
Check how many files are in the 1.1 directory.
I've seen cases where that directory will exist, and only contain a couple of files (presumably left there by some poorly-written setup script), without an installation of the 1.1 framework.
The setup you are running is checking whether the .Net 1.1 is installed in the registry (which is the official way), instead of looking at the presence of the C:\WINDOWS\Microsoft.NET\Framework\v1.1.4322 folder.
So you probably don't have .Net 1.1 installed and the folder is created by some tools that add some files they need to support that .Net version without checkin if it is installed or not (with the rationale that if it's not, but later on it is installed, they'll just start working for it).
Note that certain applications require exactly .Net 1.1 and can't run on later versions (because of certain breaking changes between 1.1 and 2.0).
And to solve your actual problem of not having 1.1, you can get the installer for it from Microsoft. Note that if you are using ASP.NET on that machine, you might have to re-register ASP.NET 3.5 and configure IIS to use it after you install 1.1.