Even though PAE/NX/SSE2 are enabled at host hardware level, if they are masked at hypervisor level, VMs cannot use these processor features. This will cause the windows setup to fail.
This issue occurs only when WinPE 4.0 or 5.0 is involved in the upgrade/installation process.
Because the issue is noticed with WinPE 4.0 and 5.0, this issue is also noticed when you deploy OS by using System Center 2012 Configuration Manager.
Step by step information on how to change these settings on vSphere client is documented in VMware document: