While doing a new install of VMware vCenter Server I ran into the following error:

Setup cannot create vCenter Server Directory Services instance. Error 28038

This error is caused by the fact that the “Network Service” does not have enough permissions on the root of the drive you’re installing vCenter on. The solution is pretty straight forward and has been described in the KB article.

1. Right-click the root drive and click Properties.
2. Click the Security tab.
3. Under Group and user names, click Add.
4. Enter Network Service and click OK.
5. Check Allow for the Read permission for the Network Service account in the Permissions for Administrators pane.
6. Click Apply and OK.

If this does not resolve the issue look into the following KB articles: 1015887 , 1013822.