The following bug has been logged online:

Bug reference: 2374
Logged by: Rick Craft
Email address: rickcraft (AT) usa (DOT) net
PostgreSQL version: 8.1.3
Operating system: Windows XP Professional
Description: Installation Error
Details:

Whenever I select a Service Username, I get a message that
localhost\username does not exist, do I want to create an account. When
answering YES, a password is automatically generated, and the installation
continues. After installing all of the DLL's and modules, it says that the
username that I created at the beginning already exists and then it does a
rollback. this happens no matter what username I try to create as the
Service username.

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