Setup cannot complete

Question

SCSM Issues while installing SCSM Management Server
-4 Procs
-8GB Memory
-Windows Server 2012 R2
-System Center 2012 R2 Service Manager
-Remote SQL Server with SQL Server 2012 SP1
-Data Warehouse is not yet installed anywhere
-Updates are allowed on SQL Server
-My powershell policy on the MS machine is UNRESTRICTED (both x86 and x64)
-My registry entry for HKLM\Software\Microsoft\System Center has been deleted
-My registry entry for HKLM\Software\Microsoft\Microsoft Operations Manager has been deleted
-My service startup timeout has been extended to 600 seconds
-The service account, MS machine and myself are SysAdmins in SQL
-The service account, MS machine and myself are Administrators on the SQL Server and the MS machine
-The service account, MS machine and myself are members of SQLServerMSASUser$SQL_Server$SCSM
-The service account, MS machine and myself are members of Distributed COM Users on both SQL and MS machines
Running setup.exe from an elevated command prompt
I receive the following error on setup:
Install Services
An error occurred while executing a custom action:_RunSMScripts
This upgrade attempt has failed before permanent modifications were made. Upgrade has successfully rolled back to the original state of the system. Once the correction are made, you can retry upgrade for this role.
Log errors are listed below
--SCSMInstall10.log---------------------------------------
GetManagementGroupInfoFromDB: Error: Object reference not set to an instance of an object.
CleanUpDirectory: FindFirstFile failed to open handle for specified directory. Error Code: 0x80070003. D:\ServiceMgr\Config Service State\*.*
CleanUpDirectory: FindFirstFile failed to open handle for specified directory. Error Code: 0x80070003. AgentManagement\*.*
CleanUpDirectory: FindFirstFile failed to open handle for specified directory. Error Code: 0x80070003. D:\ServiceMgr\Service Configurations\*.*
CAQuietExec:      + FullyQualifiedErrorId : TaskExist,Microsoft.CertificateServices.Commands.NewCertificateNotificationTaskCommand
CAQuietExec:   
CAQuietExec:  Error 0x80070001: Command line returned an error.
CAQuietExec:  Error 0x80070001: CAQuietExec Failed
MSI (s) (B4:C0) [08:49:08:524]: Executing op: ActionStart(Name=_AddManagementgroup,,)
CustomAction _CreateCertNotificationTask.80B659D9_F758_4E7D_B4FA_E53FC737DCC9 returned actual error code 1603 but will be translated to success due to continue marking
ExecuteSqlFromFile: Error: failed while executing script Timeout expired.  The timeout period elapsed prior to completion of the operation or the server is not responding..
ExecuteSqlFromFile: Error: failed while executing script Timeout expired.  The timeout period elapsed prior to completion of the operation or the server is not responding..
RunSMScripts: failed while runninf scripts
MSI (s) (B4:34) [08:51:23:418]: NOTE: custom action _RunSMScripts unexpectedly closed the hInstall handle (type MSIHANDLE) provided to it. The custom action should be fixed to not close that handle.
CustomAction _RunSMScripts returned actual error code 1603 (note this may not be 100% accurate if translation happened inside sandbox)
11/06/2014 08:51:23.421 [2484]: Assembly Install: Failing with hr=80070005 at RemoveDirectoryAndChildren, line 396
[2484]: Assembly Install: Failing with hr=80070005 at RemoveDirectoryAndChildren, line 396
InstallCounters: LoadPerfCounterTextStrings() failed . Error Code: 0x80070057. momv3 "D:\ServiceMgr\HealthServiceCounters.ini"
InstallPerfCountersHelper: pcCounterInstaller->InstallCounters() for the default counters failed. Error Code: 0x80070057. HealthService
InstallPerfCountersLib: InstallHealthServicePerfCounters() failed . Error Code: 0x80070057. 
InstallCounters: LoadPerfCounterTextStrings() failed . Error Code: 0x80070057. momv3 "D:\ServiceMgr\MOMConnectorCounters.ini"
InstallPerfCountersHelper: pcCounterInstaller->InstallCounters() for the default counters failed. Error Code: 0x80070057. MOMConnector
InstallPerfCountersLib: InstallHealthServicePerfCounters() failed . Error Code: 0x80070057. 
InstallHSPerfCounters: Failed to install agent perf counters. Error Code: 0x80070057. 
MSI (s) (B4:F0) [08:52:08:367]: I/O on thread 160 could not be cancelled. Error: 1168
MSI (s) (B4:F0) [08:52:08:367]: I/O on thread 1820 could not be cancelled. Error: 1168
MSI (s) (B4:F0) [08:52:08:367]: I/O on thread 3008 could not be cancelled. Error: 1168
MSI (s) (B4:F0) [08:52:08:367]: I/O on thread 2736 could not be cancelled. Error: 1168
MSI (s) (B4:F0) [08:52:08:367]: I/O on thread 1400 could not be cancelled. Error: 1168
MSI (s) (B4:F0) [08:52:08:367]: I/O on thread 2012 could not be cancelled. Error: 1168
MSI (s) (B4:F0) [08:52:08:367]: I/O on thread 260 could not be cancelled. Error: 1168
MSI (s) (B4:F0) [08:52:08:367]: I/O on thread 1812 could not be cancelled. Error: 1168
MSI (s) (B4!04) [08:52:08:367]: Product: Microsoft System Center 2012 R2 Service Manager -- The installer has encountered an unexpected error installing this package. This may indicate a problem with this package. The error code is 25211. The arguments are:
-2147024809, The parameter is incorrect., 
The installer has encountered an unexpected error installing this package. This may indicate a problem with this package. The error code is 25211. The arguments are: -2147024809, The parameter is incorrect., 
CustomAction _RollBack_UninstallHealthServicePerfCountersForUpgrade.80B659D9_F758_4E7D_B4FA_E53FC737DCC9 returned actual error code 1603 but will be translated to success due to continue marking
MSI (s) (B4:C0) [08:52:10:933]: Error in rollback skipped.
Return: 5
--SCSMSetupWizard.log------------------------------
08:10:29:Failed to check for Local account:No such host is known
08:14:22:An error occurred while executing a custom action:_RunSMScripts
This upgrade attempt has failed before permanent modifications were made. Upgrade has successfully rolled back to the original state of the system. Once the correction are made, you can retry upgrade for this role.
08:14:22:Install Progress - (Rollback) Rolling back action:
08:14:22:statusUpdate: Resetting progress bar for MSI: MaxValue 11183
08:15:06:mtError: The installer has encountered an unexpected error installing this package. This may indicate a problem with this package. The error code is 25211. 
08:15:15:MsiInstallProduct finished for msi E:\Setup\Server\SM.msi.
08:15:15:LaunchMSI: Setting rollback to true
08:15:15:LaunchMSI: MSI E:\Setup\Server\SM.msi returned error 1603:Fatal error during installation
08:15:15:ProcessInstalls: Install Item System Center Service Manager Install failed to install.  We did not launch the post process delegate.
Mike Brown

Answer 1

According to the log it definitely looks like a SQL permissions issue. I assume you are using your own account to install which you say is a local admin on the SQL box as well as a sysadmin in SQL.
Best practice would be to create a designated installer service account. Try creating a new service account and give it SQL sysadmin and local user on the SQL machine. Then run the installer as the account. 
Also, are scripts enabled to run on the SQL machine? 
- Slow is smooth and smooth is fast.