.Net framework mscorpe.dll error

I have a client machine with Windows 7 Professional installed on it. In order to run my latest application, I installed .Net Framework version 4.0 Full, download from here. My application works fine.

However, there is another application developed in .Net framework 3.5. When I try to execute that application, I get an error:

C:\Windows\Microsoft.Net\Framework64\v2.0.50727\mscorepe.dll is either not designed to run on Windows or it contains an error ...

I have tried removing .Net framework 4.0 and reinstalling it again and I tried repairing it, but nothing seems to work. The error remains.

I have tried installing .Net framework 3.5 separately, but I can't install it since a newer version (4.0) is already installed on the machine.

The application with version 3.5 works fine on other client machines, so I guess the issue is isolated to .Net framework installation on that particular machine.

Is there any way to repair mscorpe.dll or re-install .Net framework 3.5 ?