I ran into this issue while trying to migrate a customer to OCS 2007 R2.  When they originally setup LCS, they installed SQL with the LCS databases on the LCS server itself.  While this is not supported, it was keeping us from being able to migrate them to OCS 2007 R2.  Here's a work around that will allow you to install the KB properly without having to re-install LCS:

  1. Stop the LCS service. 
  2. Extract the files from the msi:
    1. msiexec /a LCS2005-KB911996-x86-Usa.msi /qb TARGETDIR=C:\KB911996
  3. Open a command prompt and change to the following directory:
    1. C:\KB911996\Microsoft LC 2005\DBSetup
  4. Run the following command:
    1. cscript dbqfeupdate.wsf /sqlserver:<SERVERNAME>\<INSTANCE> /Role:EE /poolname:<POOL> /verbose

This will update the backend with the necessary changes.  You can then run the .msi and let it update the front-end components.  After that, the server has KB911996 installed correctly.  We were able to install the rest of the necessary hotfixes and continue with the migration.