When you create a project in Visual Studio 2008 targeting the .NET 2.0 platform, you would expect Visual Studio to take care of the rest to enable you to install on any system running the .NET Framework 2.0, right?
Well, apparently not (at least in some versions of VS2008). When you create the setup project for your solution, you need to set the target version of .NET again. Navigate to the detected dependencies, open the Microsoft .NET Framework dependency and go to the properties window for the .NET Fframework launch condition to set the .NET version that you are targeting.
It's often the last mile in software that cause the most headache.
For a more screenshots guiding you along the way, in case you get lost, go to: