Purpose

Microsoft runtime .NET 3.5 has a path long enough with plenty of subdirectories. This creates a problem sometimes when downloading .NET 3.5 to the Repository because Microsoft also has a file path length limit of 260 characters. 

Resolution

If your repository is in the default location.

By default the repository is placed in the Public Documents folder of the server it is installed on. That makes it C:\Users\Public\Documents\Admin Arsenal\PDQ Deploy\Repository. You can workaround that file length issue by creating a folder in C:\ named NET and temporarily changing the Repo to the C:\NET location. Then after retrying the download and it completes move the Repo settings back and change the .NET 3.5 packages path to the C:\NET location or manually copy the files to your Repo.

If your repository is not in the default location you will still want to apply the same steps by reducing the file path length to a shorter one temporarily.

More Info

Microsoft has info here and discusses registry changes to change the limit.