As I avoid Steam like the plague this is my only suggestion
and if you think it can be accomplished safely, it maybe worth the effort.Firstly, I suspect that your current install is slaved to the Steam shell and this may cause GWX's intelligent installer some problems.I assume this is your install path?
C:\Program Files\Steam\steamapps\common\Silent Hunter III\
I suggest that you Copy the entire Silent Hunter III directory (complete install) to another location. Then uninstall or delete the Steam version and then (this is the important step) run a registry cleaner to remove the referencing link between Steam and SH3. You should now be able to use the copied version (from it's current location) of SH3 without it being linked to Steam (that is unless Steam have a modified EXE file, which is also fixable
).
Secondly, GWX's installer should have created a txt dump on your desktop detailing the specifics of the errors. Did you get one? Something like this:
DEBUG: Test 1 PASSED
DEBUG: Test 2 PASSED Version is 1.4.0.1
DEBUG: Test 3 PASSED
DEBUG: Test 4 FAILED Size is 6760734
DEBUG: Test 5 FAILED Size is 70298
DEBUG: Test 6 Seems to have PASSED IF Size is not Zero - Size is 1138405
Edit - Also, are you using XP or Vista?