Pretty damn badly, actually.
Against my gut instinct, I loaded SP1 for Office 2008 on my Mac today. I’d heard of wonkyness with the install, but really, those kinda problems only happen to other people, right? Wrong.
After installing the SP and loading Word, I got prompted with the Setup Assistant. I clicked through the defaults and the Assistant quit. I then load Word, got prompted with the Setup Assistant. I clicked through the defaults and the Assistant quit. I lean loaded Word and got prompted with… well, you get the idea.
Googling the problem, I find this thread on the Macfixit site. I deleted the two files, re-launched Word, got the real Setup Assistant and was prompted to re-key in my serial number. Which, naturally, it refused to accept.
I had to uninstall Office and reinstall it to get base functionality back. Good job, Microsoft. Give yourself a cookie.
[Update 7/8: After the reinstall (with my valid, individual serial number) the update worked fine. Not sure what exactly happened]
Mark Crump 
How did you uninstall and reinstall? I’ve had the same problem but reinstalling doesn’t fix it, word 12.0.0 refuses to start. MS has clearly hidden files somewhere to ruin users they think are pirates.
Well, I did this:
1- deleted the two files on the Macfixit page. Didn’t solve the problem
2- dragged Office 2008 folder to the trash
3- reinstalled
4- tried launch from an alias in the “Office” stack I had been using. Got the same Setup Assistant error.
5- Realized the alias was pointing to the Office folder in the trash and emptied the trash.
After that it’s worked fine. I still haven’t applied the SP, tho. I’ve read somewhere that if you uninstall, reinstall, and then apply the SP without having opened an app you stand a good chance at not having this error.