sorry, but we really need your 1.0 and 2.0 scripts to see what you are doing here. A restart is requested (by Windows) if you replace locked (in-use) files. The un-installation log is created (by default) in the application folder (if you have enabled the uninstall feature).

You say, "old nssm file is beeing used by another application". Unfortunately, I don't know what this means. How would you handle this scenario WITHOUT SetupBuilder. You can then replicate the steps with SetupBuilder.