Hi,
While trying to install Windows Phone Developer Tools on my machine which has Windows Server 2008 i faced lot of issues.
Finally i followed the steps mentioned in the following post to get it installed successfully.
http://blogs.msdn.com/b/astebner/archive/2010/05/02/10005980.aspx
I tried the same thing on “Windows Phone SDK 7.1” but couldn’t get it working properly.
And moreover it only worked on a system that had no other version of Visual Studio installed in it.
Hope it helps.