Thank you Suma. You're response is the best yet and helped me arrive at a solution.
I have determined that cause is explained by your first suggestion. Renaming the file to something not containing the word 'setup" did not help.
Turned out I was mistaken. I have both VS 2005 and VS 2008 installed and when I tried opening the old .dsw file, it was 2005 that was launched and offered to upgrade the project. 2005 apparently created a manifest with only one line with the tag "assembly". Once I upgraded the project using VS 2008 a more extensive manifest file was created. I confirmed that the manifest is being embedded in my program by checking the Manifest Tool...Input and Output...Embed Manifest setting. This new manifest includes the following data:
<trustInfo xmlns="urn:schemas-microsoft-com:asm.v3">
<security>
<requestedPrivileges>
<requestedExecutionLevel level="asInvoker" uiAccess="false"></requestedExecutionLevel>
</requestedPrivileges>
</security>