For those of you experiencing this issue. Here is the solution I found that worked for me:
Any application can set a pending reboot flag in the operating system through a registry key. Sometimes a reboot does not clear the flag. This is what setup is detecting.
To work around the pending reboot issue:
1. Open Regedit
2. Find the key “HKEY_LOCAL_MACHINE\SYSTEM\CurrentControlSet\Control\Session Manager”
3. Rename the “PendingFileRenameOperations” value to “PendingFileRenameOperations2”