Ok, the installer is claiming your /bin/sh shell is not there, or incorrectly setup. I seriously doubt this is the case, but check anyway.
What happens when you just type /bin/sh at the command line? (You should get a bash prompt back, type 'exit', and you'll return to your previous shell.)
/bin/sh is usually a link to /bin/bash. You might try 'ls -l /bin/sh' to confirm this. The correct output will show something that looks like one of these lines:
lrwxrwxrwx 1 root root 4 2006-02-18 01:22 /bin/sh -> bash
-rwxr-xr-x 1 root bin 94560 2002-06-02 12:13 /bin/sh
Although, I suspect your system would have failed to boot correctly if this wasn't setup right (the boot system is based on shell scripts, which usually reference /bin/sh instead of /bin/bash for compatibility reasons, eg., FreeBSD uses /bin/ash as the main interpreter which is backwards compatible with /bin/sh, like bash, but not fully compatible with bash, so you'd write in the common subset, and use /bin/sh as the interpreter to be cross platform).
Jeff