Symptoms

We are currently installing K2 1.0.6 in our PROD server. But the installation is almost on hold for an hour in K2 SmartForms Server configuration at Status: 'Setting folder permissions'.
 

Diagnoses

Smartforms installation on another server completed in a timely basis. From the installation trace logs, the Setup manager was setting permission to the %temp% directory. Comparing the working server and the server where it was taking a long time on we noticed that the %temp% directory on the slow machine was significantly large in size and file count than the one that had completed.
 

Resolution

Was able to complete the installation of K2 Smartforms after clearing the %temp% directory using one of the solutions below to speed up the installation process (using the windows disk cleanup or deleting from the %temp% directory):

http://metadataconsulting.blogspot.com/2011/08/how-to-clear-windows-7-temporary-files.html

Or perhaps using the CMD delete as per:

cd c%temp%directory]
del *.* /s /q