Well, I am in the same boat, I ran into this problem a lot. I still have one client with this problem. But most the clients I resolved the problem by adding the web site as the trusted site.
In one particular situation, the client added the site as the trusted site but still didn't work later I found out that the user policy doesn't really allow the user to add the site as the trusted site. Even though when he added the site, it will show up but when you close the panel, OS revert back the trusted site to original policy. Any at that instance we asked the admin to add the site as the trusted site and it resolved it.
One thing you can check is to give the client an offline version of the install application and ask them to install and see if they are able to install it. In that case either the Firewall might be blocking .application extension off.
As I said before I still have one client where his desktop the install is not working on the laptop is working. I am still trying find out what could be the problem
It will be nice if MS could put a list of possible reasons .application might not run at a PC. We have to learn these hard way.