I completely uninstalled, rebooted and re-installed firefox 1.0. I then uninstalled all incomatible extensions, closed firefox and started again.
update.mozilla.org is in the allowed sites, I have tried a number of extensions and the same problem, install blocked. I have cleared them out now and have to shut down to be sure and then try yet again.
Edit: Well looks like I'm stuffed, no joy what so ever getting over the Install Software block, even though the site is allowed and the 'allow website to install software' and the update.mozilla.org is in the allowed list. I even tried going to the homepage of the bbcode extension and adding that to the list but still blocked.
Without the Download With, Sort Bookmarks, Allow Right-Click and BBCode extensions firefox for me is unworkable, so it could be back to 0.9.3 and wait for a more stable version of 1.XX without the PR suffix.