We recently ran into an interesting issue. During a rollout of the outlook crm client on various workstations running both vista and xp, we had one workstation where we simply could not configure the outlook crm client. The errors were “Mandatory updates for Microsoft Dynamics CRM could not be applied successfully” and in the actual log file “System.Configuration.ConfigurationErrorsException: Unrecognized configuration section system.serviceModel. (c:\WINDOWS\Microsoft.NET\Framework\v2.0.50727\Config\machine.config”
The interesting sections of the configuration log file are:
15:07:32| Error| Microsoft.Crm.Setup.Common.SetupException: Mandatory updates for Microsoft Dynamics CRM could not be applied successfully. Try running the application again.
at Microsoft.Crm.Config.Client.UI.ServerUrlPage.CheckForUpdates(ClientConfigInfo configInfo)
at Microsoft.Crm.Config.Client.UI.ServerUrlPage.InitializeServerInfo(Uri discoveryUrl, Uri extranetDiscoveryUrl)
at Microsoft.Crm.Config.Common.UI.ServerUrlPage.ServerUrlPage_NextClicked(Object sender, NavigationEventArgs e)
at Microsoft.Crm.Setup.Common.UI.WizardPage.RaiseNextClicked(Object sender, NavigationEventArgs e)
at Microsoft.Crm.Setup.Common.UI.Wizard.NextButton_Click(Object sender, EventArgs e)
at System.Windows.Forms.Control.OnClick(EventArgs e)
at System.Windows.Forms.Button.OnClick(EventArgs e)
at System.Windows.Forms.Button.PerformClick()
at System.Windows.Forms.Form.ProcessDialogKey(Keys keyData)
at System.Windows.Forms.Control.ProcessDialogKey(Keys keyData)
at System.Windows.Forms.Control.ProcessDialogKey(Keys keyData)
at System.Windows.Forms.ContainerControl.ProcessDialogKey(Keys keyData)
at System.Windows.Forms.Control.ProcessDialogKey(Keys keyData)
at System.Windows.Forms.TextBoxBase.ProcessDialogKey(Keys keyData)
at System.Windows.Forms.Control.PreProcessMessage(Message& msg)
at System.Windows.Forms.Control.PreProcessControlMessageInternal(Control target, Message& msg)
at System.Windows.Forms.Application.ThreadContext.PreTranslateMessage(MSG& msg), Error, OK, Option1
11:48:10| Error| Configuration exception.System.Configuration.ConfigurationErrorsException: Configuration system failed to initialize —> System.Configuration.ConfigurationErrorsException: Unrecognized configuration section system.serviceModel. (c:\WINDOWS\Microsoft.NET\Framework\v2.0.50727\Config\machine.config line 146)
at System.Configuration.ConfigurationSchemaErrors.ThrowIfErrors(Boolean ignoreLocal)
at System.Configuration.BaseConfigurationRecord.ThrowIfParseErrors(ConfigurationSchemaErrors schemaErrors)
at System.Configuration.BaseConfigurationRecord.ThrowIfInitErrors()
at System.Configuration.ClientConfigurationSystem.EnsureInit(String configKey)
— End of inner exception stack trace —
After trying all the usual fixes, including burning incense, the fix was to remove Dot Net Framework 3.5 SP1. After removing dotnet 3.5 Sp1, the client was able to configure the outlook crm client right away even without a reboot.

Hi, I found this worked for a problematic user install. Thank you very much. Can I ask if you resolved why this was conflicting for such a small minority of users? Also does MSD not need .NET 3.5 SP1 then?
Hi Brett,
We think this is perhaps caused by the order that dot net and dot net sps are installed. We were not able to replicate this issue on a test machine where dot net 2,3,3.5 were installed in an orderly fashion. We also tested applying dot net 3.5 sp1 AFTER the outlook crm client is configured and this worked ok.