Hi,
the LWIP distribution does not officially support Nios II 1.1, only Nios II 1.0 and 1.01. However, I can tell you how to fudge the registry entries so that it will install on your system. However, you choose to do so at your own risk. The LWIP distribution has not been tested with Nios II 1.1
To allow the LWIP to install on your system, you need to create the following registry entry:
\HKLM\Altera Corporation\SOPC Builder Kits\nios2.0\KIT_HOME
where KIT_HOME is a string value that is the path to your nios2 installation (by default, this is
c:\altera\kits\nios2). Once this registry entry is present, the installer will proceed.
If you would like, I can email you a .reg file that can be merged into your registry (it will create the above entry), so you don't have to do it manually.