Something I thought of: have you tried renaming "My Digital Editions" in the Documents folder to "OLD My Digital Editions"? ADE would create a new folder. Maybe you have a corrupted file in there which makes ADE hang or crash.
If this doesn't work, there are some more options:
First, you can't install .NET 2.0 on Windows 7. It's already installed, as part of version 3.5.x, which is included in Windows 7's default installation. This is the reason why you don't see it in Programs and Features. First, try to re-install version 3.5 SP1:
Installer here
Have it install/update/repair the installation, if possible. It might even try to remove the current installation. If so, try to let it do this, reboot, and then re-install.
If it still doesn't work, or you can't re-install, you can try this:
- Click start, and type "cmd" without quotes.
- Right-click the command line, and start as administrator.
- Run the following commands:
sfc /scannow (press enter)
This will check Windows system files for corruption and fix them if possible. (It gets them from a backup file store, which Windows 7 manages by itself.) Then reboot the computer, and try again. If this still doesn't work, you can try this command (also in an Admin command line):
dism /online /cleanup-image /restorehealth (press enter)
This will try to fix Windows by getting files that are not correctly installed or are corrupted from Windows Update. Now try again.
If it's still not working, I have no ideas that I could offer, without actually seeing the Windows installation myself. And even then, fixing the problem might actually take more time and effort than a backup and re-installation.