I duplicated the problem. However, when I clicked the error 1706 message away (it was hiding underneith the install screen), it finished installing, and ran correctly. We tested it at MTU and didn't see this problem before (I was not on the test team).
When I did REMOVE instead of UPDATE, it did not show the error 1706 and installed normally. 
Tonysjungle, try this and post back here what you find.
NOTE! Install 3.316 using REMOVE then reinstall.