I have exactly the same problem. Just bought TLC at Best Buy this afternoon and tried to install it tonight.
It will not accept the CD key on the orange sticker inside the CD case. And the key dosen't have any of those characters that could be confusing, like the letter O and the number 0.
Not sure that I'm going to be able to play this without talking to MS or Lionshead first... ![Sad [:(]](/emoticons/emotion-6.gif)
Kinda sad that I can't even get past the security on a legitimate, legal copy of the game.