That is an interesting scenario, have to try that one out some time. There is a difference between installing and updating. What you are doing is updating, so you may be able to perform the upgrade. The registry values for hkey/local machine/software/oracle is already there, so that's why it may work. OUI is really "dumb" when it comes to Windows.

Can you run Start>Run>gpedit.msc? The restriction there is "Prevent user installs" (not configured or enabled).