i tried and googled all sorts of ways to fix this endless loop of "updating Setup file" & "launching Blizzard Launcher" but none of the fixes fixed it for me until i came across this link, http://www.gamefront.com/files/21699449
copy the whole battle.net file over the existing file in your C:/Programdata/Battle.net
after that, run your setup again and you should finally be able to get to the launcher.
those who couldn't fix the issue with all the above solutions can consider trying it out.
lastly, thanks for the upload whoever you are!
These are the other fixes just in case :)
Go to Control Panel > Administrative Tools > Services
Scroll down and find “Secondary Logon”
Right Click > Properties
Change it from ‘Disabled’ to ‘Automatic’
Run your Diablo 3 setup as administrator and it should quickly go through Updating Setup Files and bring you to an install screen. Congratulations, your game now (hopefully) works! If this solved your issue, spread it around.
Right click on the Diablo 3 setup file you downloaded via the Blizzard Downloader
Select Properties > Compatibility > Check Run this in Compatibility Mode for… > Choose Windows XP (Service Pack 3) (Note: Does not work on Vista.)
Right Click the Icon, Run as Administrator.
Delete your C:\ProgramData\Battle.net folder.
Delete your C:\ProgramData\Blizzard Entertainment\Battle.net Cache folder.
Run the Downloader again, as administrator, and see if it gets past the “Updating Setup Files” window. If not, see Fix #1.
Try and find the agent application in the battle.net folder (for example C:\Documents and Settings\All Users\Application Data\battle.net\Agent). Start the agent application manually and after that start Diablo III setup file in your Diablo-III-8370-enGB-Installer folder. Good luck!
Fix #4a – Clar
1. Run the diablo insall thing… let it get stuck.
2. Close it, and ctrl+alt+delete and end the “Agent” process.
3. Go to C/programdata/battle.net/agent and run the “Agent” executable
4. Run the diablo install thing
5. WAIT! it will get stuck for a min or so and then work