While attempting to register plug-ins on our new CRM2011 box today, I ran into this error message, "Assembly must be registered in isolation." This was driving me nuts -- I could register in the Sandbox without issue, but I needed access to system Mutexes and data logs on the hard drive which are unavailable in Sandbox.
This ended up being a simple fix -- I needed to add my user to the "Deployment Managers" group, in addition to the System Administrator group he was already in. With that done, registering went off without a hitch!
