Not sure I fully understand the 'first thing' if you can elaborate on it I'll try to help.
On our system it performs an SVN checkout of the code to a specified location and builds it there. Even though our CCNet installation is on the same box as the SVN repository it still needs somewhere separate to build the project.
On the 'second thing' it sounds like you have not set the <webURL>
element properly - not a major problem. If you can post your config file that may help (with both issues).
Our CCNet installation pretty much worked out of the box but it is pretty fussy about it's config files. Have you made any changes to the dashboard.config file or is it as installed?
[Edit in response to posted config file]
I can't see anything in this config that will cause CCNet to copy the project to c:\Program Files\CruiseControl.NET\Server\TestProject. It could be something to do with the way you are calling devenv in your batch file - do you specify any paths in there?
Based on your config file and assuming you have an out of the box installation, your <webURL>
element should read something like this:
<webURL>http://localhost/ccnet/server/local/testProject/ViewProjectReport.aspx</webURL>
On top of all that I would highly recommend that you drop the use of .bat files and devenv.exe for building your projects. Although this is the way I started with CCNet I quickly found that using NAnt and MSBuild well worth the effort.