It is possible to disable all installation of software, including add-ons, through Firefox. To check to see if software installation has been disabled:

In the Location bar, type about:config and press EnterReturn.
The about:config "This might void your warranty!" warning page may appear. Click I'll be careful, I promise!, to continue to the about:config page.
In the Filter textbox, enter xpinstall.enabled.
The value of xpinstall.enabled should be set to true. If this value is currently set to false, then software installation is disabled.
To set the value to true, right-clickhold down the Ctrl key while you click the property name, and select Reset.
Try to re-install the extension.