It is perfectly possible to install Exchange 2007 Sp1 including the latest hotfixes and updates, if you download and copy the latest update rollup to the folder called Updates in your Exchange 2007 Sp1 installation folder. When you launch setup, Exchange will have a look at that Updates folder, and install every update in that folder automatically during setup. There is no need to expand the update rollup first, just drop the Windows Installer Patch in the folder. Exchange will verify during setup the applicability of the patch, and apply it if it's applicable.