Well the first thing that pops into my head is that you do not have .NET 4 but do have 3.5 installed. However that doesn't quite make sense to me
as Terraria itself needs .NET 4 so if you can run that you should be able to run this.
Any chance I can get you to verify that you have .NET 4.0 Client Profile installed on your machine?
The way I check mine is to go to Start->Control Panel->Add/Remove and look under the "Microsoft" section.
I know they changed the name of "Add/Remove" to "Programs and Features" in Vista but I do not know about Win7.