Are there any limitations that I might face when using VS Setup Projects? I plan to use them, but am not sure if this would be a good idea.
It depends on your project I suppose. It used to be a pain to use to set up web projects, but I think there is an addin now that makes creating a web app setup a lot easier.
They are OK, if your starting from scratch I would say look into WIX, or even pony up the cash for Install Shield or one of the other commercial ones, would save you time and money in the long run.
Builds can be very slow, especially if you have a lot of binary files. I have a project with a lot of product images that get packed into the install package, this takes a LONG time, even on a fast machine.
Well, in a more advanced setting: VS Setup Projects cannot be automated, e.g. you cannot put your project and the VS Setup Project on a build server and have them built automatically. This might not be an issue for a smaller shop or a single developer, but for a larger enterprise-level development environment, this alone can be quite a killer criteria.
In order to get around this, we use WiX for our setups - more work once up front, but works nicely with continuous integration.
Marc