As with several Oracle error messages, the details were hardly of any use and no clear understanding was possible even after examining the error log. Googling for the error led me to several forum posts but most of them didn't have the right solution - most answer seekers were meeting with dead ends.
Adding localhost IP i.e., 127.0.0.1 to the hosts file etc.
but none of them helped.
At last I found this which suggested installing Microsoft Visual C++ 2010 Redistributable Package (x86) and this solved the problem in a matter of seconds! I just had to click 'Retry' on the installation dialog.