Yes, 1.03 had no trouble installing. But it has to be that way with Steam, it does not edit existing files as retail patch does. It just replaces them entirely, thats why this patch was so huge (4 gb).
Steam has said that during 2012 and beyond, they're shifting games to a new content delivery system where files can be patched without the need to replace entire files. Only the necessary code within the games files will be updated. Various games have been upgraded to this new system so far, maybe the 3rd patch to this game weighing in at a hefty 4GB also converts the games data structure to take advantage of the new content delivery system Steam is slowly implementing across the board?