I ran into the same problem in the past where the ChildProcessEnvironmentExceptions entry by itself didn't work. Try adding one or both of these your package and see if it helps. These are for Outlook 2007.

isolation_merged HKEY_CURRENT_USER\Software\Microsoft\Installer\Features\00002109A10090400000000000F01FEC

isolation_merged HKEY_LOCAL_MACHINE\Software\Microsoft\Windows\CurrentVersion\Installer\UserData\S-1-5-18\Products\00002109A10090400000000000F01FEC\Usage

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