Is the option to create a desktop shortcut during installation only available if the application targets the .NET Framework 3.5? On one of my projects, the option is grayed out and is targeting the .NET Framework 2.0. In case your wondering, I am using Visual Studio 2008 Express Edition.
IronRuby targets 2.0SP1 and can have the option. It's probably a limitation of the installer technology or Express. Wix is what we use, might want to look at that.
Using the Visual Studio 2008 (non-express) Setup and Deployment project template, I'm able to include a .NET 2.0 .exe (a windows forms app, confirmed to have been built targeting .NET 2.0) and have it detect the .NET dependency. I'm then able to create a shortcut on the desktop to the .exe without issue (by creating a shortcut in the "User's Desktop" folder within the "File System" window).
Edit:
What I described above is a deployment process quite different from the one that you're having problems with, I apologize. To clarify the question slightly, I believe this is a C# Express Edition project being discussed, and the deployment method is via the Project Properties->Publish tab. I can confirm this same shortcut-option-grayed-out 'feature' exists in Visual Studio Professional 2008, and I can't establish why this is exactly; I'd imagine it has something to do with the sophistication of how it wants to deploy things (with such do-dads as checking for updates automatically).
My original post is then a kind of workaround for you, but alas the Setup and Deployment project I mentioned is not packaged with VS C# Express Edition.